WASHINGTON – The Internal Revenue Service's law enforcement arm is using a data mining program that digs through tax returns and financial transactions of millions of Americans, using the extensive records to assemble dossiers on individuals in search of terrorist activity.
Reveal System allows the IRS’ Criminal Investigation unit to use at least 16 IRS and Treasury Department databases in concert with counterterrorism information and other records from corporate aggregators ChoicePoint Inc. and LexisNexis Group. The system also allows room for users to add more databases.
Using the system, the criminal investigation can search all of the data quickly, sifting through account numbers and balances and analyzing financial transactions over time. It matches the records with individual, corporate and charity tax filings. Post-Sept. 11 changes to confidentiality protections built into the IRS code over 30 years make it easier for the Criminal Investigation unit to share information about terrorist investigations with other agencies.
General auditing by IRS revenue agents, a civil procedure, is intended to determine if individuals are entitled to take the deductions they claim. Criminal Investigation, which examines whether individuals have willfully made an effort to hide income, looks even closer for criminal and terrorist activity and can result in criminal prosecution if the case is forwarded to the Justice Department. Criminal investigators have both accounting and law enforcement training.
In a May 2004 report compiled by the Government Accountability Office that was not made public, the agency said it used Reveal for counterterrorism investigations. Among the first places it was used was the Garden City Counterterrorism Lead Development Center in New York. The E-Government Act of 2002 requires agencies to show how electronic data collection works and how it impacts individuals’ privacy. Reveal’s current privacy impact assessment does not describe its role in tracking terrorist suspects. A 2005 GAO report criticized the IRS for this omission.
An inaccurate privacy assessment that does not tell taxpayers how their information is used could lead to abuse, said Marc Rotenburg, executive director of the Washington-based Electronic Privacy Information Center. Departing from privacy laws deprives taxpayers of the full protection once available, Rotenburg said.
``At some level that’s probably going to make it more difficult to ensure…oversight in making sure the IRS is doing what it claims to be doing,’’ Rotenburg said.
Terrorism exemptions inserted into the IRS code in 2002 allow the Treasury Department to disclose some taxpayer information to law enforcement agencies engaged in investigations and responses. The law also allows the Treasury Department to pass information to intelligence agencies if a written request is received. Termination clauses for the exemptions written into the code have been renewed every year since 2002.
About a month after 9/11, the Right to Financial Privacy Act of 1978 was amended to permit the disclosure of financial banking information to any intelligence or counter-intelligence agency investigating international terrorism. The IRS has had unfettered access to this information for years. It also maintains the government’s Currency and Banking Retrieval System, the online database that tracks large or suspicious transactions as determined by the Bank Secrecy Act.
The IRS maintains extensive financial information about millions of American taxpayers. So do private data aggregators, which comb public records to compile databases of home purchases, credit histories and former employment. The IRS is spending about $43.3 million in contracts through 2010 with ChoicePoint for credit reporting services, according to federal records.
Criminal investigators who have access to Reveal also have access to ChoicePoint and can verify leads, said Kevin Hohn, Reveal's former project manager who retired from the IRS in June 2005. They also are able to include more databases that can be searched by Reveal, though most users don't know how, Hohn said.
Reveal searches through databases of individual and corporate tax returns, and the records of financial institutions, accountants, charities, banks and casinos, all of which are required to file reports with the Treasury and the IRS.
With so much aggregated data, the IRS can see connections and patterns, something the agency misses when it’s only focused on individuals.
``It refines the way they're able to view and identify people,'' said Jesus Mena, a consultant to the Department of Homeland Security's Office of Inspector General and former employee in the IRS' research department. ``There's red flags that data mining can discover. It's a process that makes you more efficient, more effective.''
David Perry, the supervisory special agent of the Garden City lead development center supervises 20 analysts who regularly use Reveal as part of their investigative tools.
``Reveal is kind of like a Google or Yahoo,'' Perry said. ``[It's] a search engine that sits on top of the databases.''
``Reveal is more of a pointer for us,'' Perry said. ``It let's us know how complicated the case is going to be.''
Reveal, which cost $6.5 million to install and requires $600,000 in annual maintenance, can take a suspicious pattern of behavior and lead investigators to all individuals who fit it by allowing searches based on specific criteria. It also can search for a particular person. Most queries at the counterterrorism lead development center are reactive and come from field agents, Perry said.
Using programs called VisuaLinks and the Digital Information Gateway, Reveal can detect and visually depict connections buried in mountains of tax documents, linking employees with employers and charities with donors, by cutting and grouping data using defined models. It uses large quantities of data and finds common patterns among databases, organizing it in a diagram that shows links established among individuals, addresses, Social Security numbers, and other personal and financial information.
While Reveal has helped criminal investigators become more efficient, it's difficult to say whether it has been effective in counterterrorism and catching tax cheats, Reid said. Though the program has audit trails used to deter casual browsing, there is no way to discover whether Reveal was used in a particular case, she said. But overall Criminal Investigation case numbers were up 9 percent in 2005 to about 4,300, which may be attributed in part to Reveal, Reid said. Hohn, Reveal's project manager, surmised that it was most often used in money laundering cases.
Although one of Reveal's first tests was in counterterrorism, Criminal Investigation now uses it in investigations of money laundering, tax fraud and criminal activity. One way criminal investigators use it is to generate terrorist leads by examining charitable giving, said Patty Reid, a Criminal Investigation spokeswoman.
``What we're finding in our work is the majority of counterterrorism mostly has to do with charitable organizations that have been established in the United States that are sending money back to countries that support terrorism,'' Reid said. ``We have actually found and prosecuted some cases where charities have been misused for terrorism purposes.''
Reveal has access to 990 forms, which are returns for tax-exempt organizations. Some attachments include lists of major donors. But today when the IRS is investigating a charity it suspects of aiding terrorist groups, those lists of donors can provide helpful information.
These investigations have caused some discomfort in the Muslim-American community. Individuals are aware that their charitable giving is being monitored and that has had lingering effects on their willingness to donate, said Arsalan Iftikhar, legal director of the Council on American-Islamic Relations.
``It had a severely chilling effect on American Muslims' First Amendment right to free association,'' Iftikhar said. ``And it's something that obviously American Muslims became very reticent about in terms of the ability to give money to charities, which is a central part of Islam and the lives of most Muslims.''
Since Sept. 11, five Muslim-American charities have been shut down and their assets frozen, according to a February 2006 report by OMB Watch, a Washington-based government watchdog group. While some people associated with the organizations have been convicted, the organizations have not been charged, according to the report.
Reveal's capabilities improve Criminal Investigation’s ability to participate in Joint Terrorism Task Forces, according to Reid. These 35 nationwide task forces bring together in one office individuals from different agencies such as the FBI and the CIA to coordinate efforts. Criminal Investigation plays an active role on these task forces and frequently assists in investigations.
About 100 of CI’s 2,800 special agents mainly working in lead development centers have access to Reveal, Reid said. Each user has received training and has specific access privileges, Reid added.
Information flows both ways on the task forces, according to Reid. Agents working on the task forces pass information to Criminal Investigation that is later incorporated into Reveal, creating a more complete profile of individuals, Reid said. Under certain circumstances the IRS can provide information to the task forces as well, she added. While the IRS can search for profiles, task force members can only query by name, Social Security number or address, Reid said.
Combining so many diverse sources of information and using them in ways that have little to do with tax collection while failing to inform citizens that the information is being used in new ways is concerning, said Harper of Cato.
``The starting use of this kind of thing is going to be for terrorism, and we’re all going to be in favor of fighting the terrorists,'' Harper said. ``The finishing point of this is going to be for catching `deadbeat’ dads and enforcing student loans, unpaid parking tickets. It’s basically the beginning of comprehensive financial surveillance.''