The Patriot Act: Business Balks

It's joining critics who seek to curb the law's wide-ranging investigative powers

Las Vegas Mayor Oscar B. Goodman loves to remind visitors of Sin City's oh-so-discreet tagline: "What happens in Vegas stays in Vegas." But since the New Year's celebrations ringing in 2004, he has had to modify the motto. Fearing a terrorist attack, the FBI descended on casinos, car rental agencies, storage warehouses, and other Las Vegas businesses with sheaves of "national security letters" demanding financial records covering about 1 million revelers. Startled business owners who questioned the action were told they had one choice: cough up their documents or wind up in court. Now, a somber Mayor Goodman acknowledges, what happens in Vegas may end up staying in an FBI computer. "It's Kafkaesque," he says. "The central component to our economy is privacy protection. People are here to have a good time and don't want to worry about the government knowing their business."

The FBI carried out its document hunt under the Patriot Act, the anti-terrorism law passed hurriedly in the aftermath of September 11. The act allows investigators to demand that businesses turn over sensitive financial records, without specifying the investigation's target or why the files are needed. The outfit receiving a letter is permanently gagged, prohibited by law from ever disclosing that the feds came calling. Indeed, the statute is silent on whether company officials who receive an order can call a lawyer or appeal to a judge -- although the Justice Dept. says it always allows businesses to seek legal recourse, behind closed doors and without the person appealing present. "Businesses want to cooperate in the war on terrorism, but this type of unchecked government power goes a little over the line," says Bob Shepler, director of corporate finance at the National Association of Manufacturers (NAM).


With most provisions of the Patriot Act due to expire at yearend, the Administration has been urging Congress to make its temporary police powers permanent. But an odd coalition is trying to scale back the government's reach -- and it may be making headway. On Nov. 9, word came from Capitol Hill that the rising chorus of civil liberties complaints could produce a deal to temper some of the law's more intrusive features.

If that happens, corporate interests can notch up part of the victory to savvy lobbying. Concerned about the circumvention of due process guarantees -- and about hefty compliance costs -- a half-dozen prominent business groups have joined with the American Civil Liberties Union to push Congress to narrow the law's scope. What's surprising in today's with-me-or-against-me Washington is that the coalition includes such Bush allies as the NAM, the U.S. Chamber of Commerce, and the National Association of Realtors. "These are not groups that normally take on this Administration," says Susan Hackett, general counsel of the Association of Corporate Counsel, a coalition member that represents companies' in-house lawyers. "People in the business community clearly are worried."

Administration officials insist they haven't overreached. "The Patriot Act allows us to get a very limited set of records," contends one Justice official. "We are not inclined to ask courts to endorse fishing expeditions, and courts are loath to do so." Department officials say that judges have granted them access to business records under Section 215 of the Patriot Act just 35 times in the first 3 1/2 years of the law, adding that those orders involved only data on driver's licenses, public accommodations, apartment leases, credit cards, and telephone use.

But Justice also enjoys broader clout under the Act's Section 505 -- an expansion of national security letters, issued without a court order. Since 2001 the feds have served as many as 30,000 letters a year, according to Administration sources and civil libertarians. Despite the volume of requests, one Justice official says: "There has not been a single verified abuse of any Patriot Act authority."

Still, corporate lobbyists and business groups are increasingly concerned about the law's cost and potential for abuse. The business alliance spelled out its reform agenda in an Oct. 4 letter to Senate Judiciary Committee Chairman Arlen Specter (R-Pa.). The groups argue that the Patriot Act's Sections 215 and 505 "allow the federal government to require voluminous and often sensitive records...without [public] judicial oversight or other meaningful checks on the government's power." They say that compliance with the demands puts confidential financial data, trade secrets, and other proprietary information at risk. Another concern: the fear that multinationals could land in legal trouble abroad -- particularly in Europe -- for violating stringent privacy laws there if they comply with U.S. government demands for financial records.

The businesses with the most at risk are real estate agents, car dealers, casinos, jewelers, boat dealers, travel agencies, insurance brokers, Internet service providers, and pawnbrokers -- all deemed to be financial institutions under a broad definition approved by Congress in 2003. "Our customers must be comfortable that sensitive financial information will remain confidential," says Tom Heinemann, a policy analyst at the Realtors' association. "Our industry wants to make sure that there are appropriate checks and balances in place to protect access to those kinds of records."


What's more, the business groups contend that the Patriot Act, as written, gives the feds carte blanche to rifle through corporate records. One worry: Like police searching a car trunk after a traffic stop, the feds could discover evidence of unrelated crimes or securities law breaches when they rummage through business records. "The sweep of government power is extremely broad," says Lisa Graves, senior counsel at the ACLU. "When you've got a hammer, everything starts to look like a nail."

Business groups say they already are getting pounded. They argue in their Oct. 4 letter that the law "does not impose any limit on the breadth of records" demanded by federal agents, and they are seeking "a meaningful right to challenge the order when the order is unreasonable, oppressive, or seeks privileged [business] information." The coalition has urged Congress to give companies the right to seek court permission to lift the act's lifetime gag orders, an idea that may be taking hold.

Few of these complaints are registering with the usually business-friendly Bush Administration. The Justice Dept. says that business has all the protections it needs. "There are sufficient safeguards that many choose to ignore," Attorney General Alberto R. Gonzales told the Senate Judiciary Committee at an April hearing. Among those: a right to appeal to a secret court and a limited right to counsel to comply with or challenge an order. Gonzales now favors including those guarantees in the rewritten Patriot Act, which will be finalized by House and Senate negotiators scheduled to meet for the first time on Nov. 10.

But Gonzales is likely to be disappointed by many of the other provisions negotiators are now hammering out. Both the Senate and House versions of the measure would allow a judge to modify an FBI order that was deemed unreasonably burdensome on a business. And on Nov. 9, the House directed its team to accept Senate-passed provisions setting a four-year sunset clause on many of the Patriot Act's key provisions, despite Administration opposition.

In final negotiations, the Senate is pushing its House counterparts to incorporate most of the safeguards sought by commercial interests. One big victory for the corporate coalition came on Nov. 9 when House negotiators agreed to permit businesses or individuals to seek judicial review of national security letters. Senate leaders believe they have an agreement on another top business concern: limiting the power of law enforcement to keep company records on file forever. A tentative deal would require investigators to return or destroy lists they've obtained, such as those covering airline passengers or casino customers, if the terror tip turns out to be a dud.

Less certain is the fate of a Senate-passed requirement that the FBI link the specific records that it's seeking to a specific suspect. The Administration is fighting to maintain its current power. The changes sought by business "are overly complex and will lead to litigation difficulties [in pursuing terrorist suspects] because it will require the courts to engage in a more complicated legal review," one senior Administration official argues. As BusinessWeek went to press on Nov. 9, congressional leadership sources said that no final deal had been cut on the sensitive issue.

In one area, business appears to be losing: Neither version addresses corporate concerns about exposing trade secrets or breaching customer privacy.

Corporate reps in Washington acknowledge that they had qualms about the Patriot Act from the start but say they didn't want to speak out against the key legislative underpinning of the war on terrorism immediately after September 11. But with George W. Bush's approval rating now hovering below 40%, Hill Republicans may have decided that it's wiser to stand up for their corporate donors than to stick with their embattled President.

By Richard S. Dunham

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