Katrina NY times

							September 29, 2005
After Hurricane Katrina, a Bank Turns to Money Laundering
By KEN BELSON

GULFPORT, Miss. - The scene would make a mob boss proud: workers in a windowless
hallway scoop armfuls of grimy cash out of plastic garbage bags and sling them into a
washing machine. Others fill the dryers and iron the clean bills. Nearby, a half-dozen
women count the freshly pressed bills and bundle them into thousand-dollar wads.

In an era of cashless and instantaneous transactions, this laundering operation, which has
been up and running since shortly after Hurricane Katrina hit on Aug. 29, is no mirage. In
fact, it is part of the recovery process for one of Mississippi's largest financial
institutions, Hancock Bank, which like most banks in Katrina's path is still repairing its
network.

Hancock Bank's branches in the worst-hit areas had no phone or data lines or power for
weeks. Bank tellers could not find account balances or swap crucial information with the
bank's backup data centers in Baton Rouge, La., and Chicago. Automated teller machines
were inoperable.

About 90 of the bank's 103 branches in the New Orleans area and along the Mississippi
coast were damaged in some way. Many of them lost connections to the main data center
in the company's headquarters in Gulfport, which was shattered. Most branches are now
functioning again, but seven were smashed and have been temporarily replaced by
mobile operations in R.V.'s.

"We've moved a $5 billion bank in three days to four states," said John Hairston, the
bank's chief operating officer. "It will take up to at least half a year to reconsolidate."

Katrina also forced the Federal Reserve operations in New Orleans to move to Atlanta,
making it harder for Hancock Bank to get fresh cash to meet surging demand. To remain
liquid, the bank recovered millions of dollars from its A.T.M.'s, night deposit boxes and
vaults that had filled with water and silt - and washed and dried the cash as fast as they
could. "We're doing it the old-fashioned way," Mr. Hairston said.

Even for Hancock, which has endured hurricanes for a century, the storm exposed how
dependent banks have become on telephone and power networks. Without them,
Hancock was forced back to the 1960's, before centralized computers at corporate data
centers turned branches into satellite offices.

Still, banks on the Gulf Coast, like Hancock, typically fared better than many other
businesses because they are required by federal law to keep backup copies of their data.
Their disaster recovery plans are also tested and audited frequently. Hancock has a full-
time manager - whom executives jokingly call Dr. Doom - to keep the bank's equipment
and plans current.
Even so, the bank was overwhelmed because the telecommunications providers,
including BellSouth, that support its networks were knocked out by flooding in New
Orleans and the storm surge that engulfed Mississippi.

"The banking industry is extraordinarily prepared, but there's no way to keep all
operations up and running when they are under the water," said Scott MacDonald, chief
executive of the Southwest Graduate School of Banking at Southern Methodist
University in Dallas.

One problem, Mr. MacDonald said, is that most banks are regional, not national, so their
offices and networks are heavily concentrated in one area and thus susceptible to being
knocked offline during big storms. When phone and power lines go down, they can lose
connections with their backup data centers, even if those are in distant states.

Hancock, which has branches from Tallahassee, Fla., to Alexandria, La., has an
operations center in Baton Rouge and backup computers in Chicago, which are
maintained by SunGard, the financial processing company. This set-up allowed the
company to get its A.T.M.'s and branches outside the affected areas running a few days
after the storm.

But without Internet connections to the branches in the hard-hit areas, tellers there were
forced to write customers' names, account numbers and the amounts they withdrew on
pieces of paper. The chits and checks were driven to Baton Rouge overnight, where
workers - more than 100 of whom are bused in from Gulfport daily - typed the data into
computers.

Hancock worked with BellSouth to reconnect its local branches and the headquarters with
the backup computers in Chicago. The lines were not restored until Sept. 15, or 17 days
after the storm. To make sure the A.T.M.'s worked, Corrine Buchholz drove down to the
machine at the Crossroads branch near the company's abandoned headquarters.

"We were dancing in the driveway," said Ms. Buchholz, who oversees the A.T.M.
network at the bank.

Customers were so hungry for cash that within seconds, cars driving on Highway 49
nearby spotted her and made U-turns in traffic to get in line at the carport.

"If people can get their balance and some cash, they feel better," she said.

Mr. Hairston said service would have been restored in less than a week if federal
regulations had not forced BellSouth to handle other customers first. To speed restoration
efforts during emergencies, the Department of Homeland Security assigns agencies and
companies a Telecommunications Service Priority code. The executive branch of the
federal government is at the top of the list; other agencies and utilities follow.
Banks are typically in the fourth tier. As a result, when a group ahead of Hancock asked
BellSouth for help, the phone company stopped work and moved elsewhere.

A month after Katrina, much has been done. In addition to restarting A.T.M. service in
Gulfport, the bank's command center now has landlines. It has 120 phone lines at
Hancock University, the company's training center, thanks to a digital router that
BellSouth installed.

Before that, employees relied entirely on cellphones.

After several weeks of sleepless nights, the bank's technology manager, Walter Hatten,
now has time to assemble a to-do list. First on the list: Set up a new data center, most
likely north of Interstate 10, which runs parallel to the coast, but was far enough north
that the storm waters did not reach it. A storm might knock out power or phone service
there, but the equipment and building would be unlikely to be damaged.

Or so they hope.