Calling All Cybercops.(monitoring credit card use)(Brief Article)(Statistical Data Included)

Criminals can be predictable. A pickpocket might buy a tank of gas, fancy jewelry and the latest computer in one frenzied hour with a stolen credit card. That's why a legitimate cardholder on a rapid-fire shopping spree may find the credit-card company asking for verification. This vigilance is the product of software that monitors millions of credit-card accounts, compares patterns of activity with what's "normal" and red-flags anything that looks out of place. In recent years software has gotten powerful enough to spot suspicious transactions as they occur.

High-tech tools even more sophisticated than this are now being used as weapons in the war against terrorist networks. As the United States and its allies work to ferret out Al Qaeda's sources of funding, financial institutions all over the world are under increasing pressure to pitch in. Banks have been required to report transactions that might point to bribery, insider dealing, money laundering and other crimes for years. New legislation passed since September 11 may force brokers, insurance companies and other financial institutions to do the same. But how to sift through tens of millions of transactions each day? With fancy software that costs several millions of dollars a pop. Whether or not it will help put terrorists behind bars is an open question.

The battle against financial crime has historically centered on organized crime and the drug trade, in particular the laundering of drug money. It's a cat-and-mouse game. In the 1970s U.S. officials required financial institutions to report currency transactions of more than $10,000. When criminals learned to structure their transactions into smaller amounts, the U.S. authorities lowered the threshold. A few years later, they tried to institute tougher "know your customer" rules but were shouted down by consumer privacy groups and financial-industry lobbyists. Even so, banks got the message: they must do more to stop illegal transactions. The mandate became more urgent in 1999 when Russian banks were caught laundering money through the Bank of New York. "It was clear some kind of technological solution was needed," says criminologist Michael Levi at Cardiff University in Wales.

Some banks turned to software that could look for certain types of account movements known to be associated with criminal activity. Such "rules based" systems help banks trawl through seas of data, but they are merely reactive. "Criminals can quickly figure out what institutions are looking for," says Peter C. Stockman, an partner at Accenture. More recently, the better-heeled banks have turned to "adaptive" programs, which incorporate various flavors of ...