Show Me The Money

For FBI agents in Las Vegas, cases don't get any juicier. Earlier this year the Feds were closing in on Michael Galardi, the city's biggest strip-club baron, who was suspected of bribing local officials. Facing prosecution, Galardi cut a deal and confessed to funneling hundreds of thousands of dollars to Clark County commissioners. Galardi told agents that he gave one official $20,000 to help buy a new SUV; another received $400 worth of lap dances at one of his clubs. In exchange, the commissioners had allegedly done Galardi favors, such as spiking a proposed lap-dance ordinance that would have put stricter limits on how much the customers could touch. To make their case, the agents working "Operation G-String" needed to see the financial records of local officials. To do that, the FBI turned to a new weapon in its arsenal: the USA Patriot Act.

Whisked through Congress in the weeks after 9/11, the Patriot Act--which gives federal law enforcement wide-ranging powers to track and eavesdrop on suspected terrorists--was promoted as an urgently needed law to thwart future attacks. When civil libertarians complained the law could lead to abuses, Attorney General John Ashcroft derided them as "hysterics." He insisted that any weakening of the act would "risk American lives." Some early fears that the Patriot Act would be abused have been overblown. One much-criticized provision that allows the FBI to monitor the books people check out of libraries hasn't actually been used at all. Yet Operation G-String shows how the Feds are using their new powers in cases that have nothing to do with terrorism--something most members of Congress never anticipated.

In Las Vegas, the Feds used a little-known provision in the Patriot Act that allows them to quickly obtain financial records of suspected terrorists or money launderers. Law-enforcement agencies can submit the name of any suspect to the Treasury Department, which then orders financial institutions across the country to search their records for any matches. If they get a "hit"--evidence that the person has an account--the financial institution is slapped with a subpoena for the person's records.

The Feds might have gotten the same records even without the new law--but only if they had hard evidence that a suspect was doing business at a particular bank. In effect, the Patriot Act allows the Feds to search every financial institution in the country for the records of anybody they have suspicions about--the very definition, critics say, of a fishing expedition. "It's the functional equivalent of a national subpoena," says Peter Djinis, a banking lawyer. Even the law's architects acknowledge just how far-reaching the provision is. "It's an extraordinary power," says David Aufhauser, a former general counsel at Treasury, who insists it's being used responsibly.

It's the Patriot Act's money-laundering language that has allowed the Feds to stretch the way the law can be used. Essentially, money laundering is an effort to disguise illicit profits. But it's such a broad statute that prosecutors can use it in the pursuit of more than 200 different federal crimes. Treasury Department figures reviewed by NEWSWEEK show that this year the Feds have used the Patriot Act to conduct searches on 962 suspects, yielding "hits" on 6,397 financial records. Of those, two thirds (4,261) were in money-laundering cases with no apparent terror connection. Among the agencies making requests, NEWSWEEK has learned, were the IRS (which investigates tax fraud), the Postal Service (postal fraud) and the Secret Service (counterfeiting). One request came from the Agriculture Department--a case that apparently involved food-stamp fraud.

Operation G-String went a step further. It was the first time the FBI used the Patriot Act's powers against local pols. To the Feds, it was a great success. Three local commissioners and a lobbyist were indicted this month. (The FBI also pulled records on one Vegas council member--and several officials' ex-spouses--who were never charged). An FBI official defended the searches as "entirely lawful." Even so, Rep. Shelley Berkley, a Nevada Democrat, complained to the local FBI chief. She says she was told the agents were only "using the tools that Congress gave them." The conversation left Berkley unsettled. In the urgent push to pass the Patriot Act, she says, "never... did the FBI say we needed additional tools to keep this nation safe from strip-club operators."