Railroads helped modernize society, but they also gave rise to train robberies. With telephones came phone fraud, and with air travel hijacking.

Similarly, with electronic commerce a bold new breed of crime will evolve. Stanley E. Morris, director of the Treasury Department's Financial Crimes Enforcement Network, is ready for it, but he admits to being baffled about what form it will take.

"New cyberpayment systems are being unveiled, and what does that portend?" Mr. Morris ruminated in a recent interview. "The government's answer is: 'Beats the heck out of us.' "

What he calls "cyberpayments" - including stored-value cards and payment systems for the Internet - are so new and changing so fast that a financial crime fighter can only theorize. In this respect, Mr. Morris has a lot in common with the bankers who are puzzled about the implications of electronic commerce.

"The truth is that we cannot jump in with a quick (regulatory) solution when all we see is a piece of the puzzle," Mr. Morris said.

His agency, known as Fincen, is chiefly responsible for enforcing the Bank Secrecy Act, which combats money laundering by requiring financial institutions to report sizable transactions. (Mr. Morris calls it the Not- So-Secrecy Act). In concert with other agencies, Fincen has the muscle to set rules on Internet and smart card payments.

In an effort to educate itself, Fincen sponsored a colloquium on cybermoney last September, and plans more outlets for collective brainstorming and hand-wringing.

Mr. Morris has visited Swindon, England, site of the Mondex smart card trial. He has met frequently with William Melton, founder of Cybercash Inc., the Internet payment system company based near Fincen in Vienna, Va. And he keeps close tabs on how other companies, including Digicash Inc. and First Virtual Holdings, are trying to advance electronic money and commerce.

"The irony of all this new technology is that it presents risks and opportunity for everyone, from the entrepreneurs to organized crime," Mr. Morris said.

He sees vast opportunities. A small merchant might use the Internet to cut costs by processing all bill payments and inventory orders on-line. A retailing giant like Wal-Mart could benefit by encouraging shoppers to use stored-value cards and zapping its profits directly to mutual funds or other investments.

The 20% of the population who lack bank accounts could safeguard their money by using smart cards, Mr. Morris said, and people who receive government benefits could receive them electronically or on a chip card.

But the crime risks are correspondingly scary.

"The one thing we know is that cash is a problem for money laundering and organized crime," Mr. Morris said. "It's bulky, it's easily discoverable. With the new system, you can put it all on a microchip."

On a small scale, crack dealers could use stored-value cards to make easy, anonymous sales. On a larger scale, Mr. Morris said, narcotics rings could use the Internet in the same way as a legitimate business, ordering supplies from overseas, downloading currency onto chip cards, and bypassing traditional financial institutions.

"Organized crime can't operate if it can't hide its money," Mr. Morris said. "Now you can basically set up systems that are individual-to- individual and that can move large amounts outside of the banking system. That's a problem."

"It's easier to smuggle $50,000 in stored-value cards versus $50,000 in a suitcase," conceded John Byrne, senior federal counsel for the American Bankers Association. "There is some concern that drug cartels are already looking at some of these stored-value cards as an opportunity."

The ABA's Payments System Task Force, which Mr. Byrne helped organize, recently heard pleas for cooperation from Fincen and Secret Service officials.

"The analogy they made was to credit cards," Mr. Byrne said. "They suggested that when credit cards were developed, there was no concern about the real effect they would have on crime."

Only after banks had flooded the market with cards did fraud and credit losses pile up, and law enforcement officials found themselves blindsided.

"They told us that if they had been involved earlier on, some of that may not have happened," Mr. Byrne said.

The case of electronic commerce may be a different, in that much of the electronic payment developers are entrepreneurs and start-up software suppliers. Mr. Morris said, "The typical regulatory approaches won't work."

One proposed solution - imposing caps on the amount of money stored on a smart card - already looks untenable. Mr. Morris said criminals would likely circumvent such caps, and retailers could be frustrated by them.

"To the extent that this is low-end stuff, spare change, it doesn't cause me any particular concern," Mr. Morris said. "But there's nothing in the technology that keeps it there. If the market moves to an interest in higher-end payment services, then the industry will follow it."

Some regulators have raised the possibility of requiring that records be kept of smart card and Internet transactions, with reports made available to banks periodically.

"Too Big Brother," scoffed Mr. Morris. "We are not a bunch of KGB wannabes who would like to come in and control everyone," he said. "We are also citizens who recognize the importance of protecting privacy interests and the market."

Mr. Morris, a former director of the U.S. Marshals who keeps a display of guns in his office, describes himself as a conservative. Despite being a high-tech crime fighter, he was at first reluctant to have his pay deposited electronically in his bank account.

Today, he envisions a paperless money society emerging within a century.

"There is in fact a technology revolution going on here, but the future of banking is very inchoate, it seems to me," Mr. Morris said. Some bankers "think that the concern levels that we are raising are unduly alarmist, although I try very hard not to be."

He noted that magnetic stripe cards were scarce two decades ago, and now there are two billion of them. Bankers, he said, must anticipate a similar growth curve for electronic commerce.

"I really think this is going to happen," he said.

"Most of those interstate banking regulations are going to be essentially irrelevant," Mr. Morris said. And regulations imposed by individual countries may only serve to impede their domestic financial institutions.

"We've looked very neatly at the world with national boundaries and borders, but the world doesn't work that way anymore," he added.

Fincen is doing its part internationally, fostering law-enforcement alliances with other countries and encouraging those without electronic- crime units to create them.

U.S. regulators' hands-off approach to electronic commerce has been a relief to most bankers.

After the ABA payments task force listened to what Fincen and the Secret Service had to say, "There was fairly unanimous opinion that this doesn't need to be restricted by government regulation, and that issues need to be addressed as they surface," said Bradley L. Barrett, a panel member who is also executive vice president of the Tennessee Bankers Association.

But the Independent Bankers Association of America is more wary, calling on Fincen to take greater precautions to ensure that suspicious-transaction reports do not fall prey to computer hackers.

"I think bankers recognize there's got to be some kind of structure in which this evolves, but it's a very fine line," said Robert Rowe, IBAA's regulatory counsel. "You don't want it so structured that it inhibits any type of growth."

Unless the Federal Reserve and other regulators get involved, Mr. Rowe said, "you'll have AT&T and Microsoft and a number of large nonbank institutions getting into the payment system through the back door, which is not desirable from any standpoint."

Mr. Morris seems confident that banks will be at the center of electronic commerce, which could simplify his job. He returns to a line from "All The President's Men," when Deep Throat told the reporters investigating Watergate to "follow the money."

"Crooks are in it for the money," Mr. Morris said. "That was true in the '30s, it was true in the '50s, and it's still true in the '90s."

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