Let’s Make Fighting Terrorism Financing An International Battle

By Victor Comras

I want to build on the very useful piece posted here
<http://counterterro rismblog. org/2008/ 02/the_bank_ secrecy_act_ for_begin. php>
by my colleague Jeff Breinholt, which describes the Bank Secrecy Act and the
due diligence and suspicious transaction report responsibilities it imposes
on US financial institutions. These responsibilities go well beyond
terrorism financing and include money laundering, corrupt practices,
financial fraud, and a whole range of other criminal activities.

The US has been at the forefront in putting together a workable and
effective regulatory system that seeks to protect both legitimate privacy
rights and national security interests. But, the greatest part of this task
falls on the financial institutions themselves, and anything the government
can do to assist them should be welcome. In this vein, Breinholt’s
observation that the government needs to do more to facilitate a two-way
flow of information between the banking community and government agencies,
and to provide security clearances to eligible bank compliance officers,
should be taken up seriously by both Congress and the Administration.

The complexity of international financial transactions provides many
opportunities for sophisticated terrorism supporting organizations, and
other criminal enterprises, to mask effectively the transactions’ actual
originators and/or ultimate recipients. Funds are often channeled through
multiple overseas banks and accounts, making it near impossible for the
banks themselves to identify and tag suspicious transactions. They often
over compensate by providing a mountain of suspicious activity and other
reports. As of June 30,2007 US banks and non depository financial
institutions have filed some 4.7 million Suspicious Activity Reports (SARs)
with FinCen, the US government agency charged with mining the data collected
under the Bank Secrecy Act and linking it with law enforcement, commercial,
and other intelligence data sources. A breakdown of these
<http://www.fincen. gov/sars/ sar_by_numb_ 09_sec1.xls> figures indicates that
1.68 million dealt with possible money laundering (which might also include
terrorism financing). Only 3,527 SAR’s (since 2003) have been classified as
possible terrorism financing (736 in 2006 and 351 for the first half of
2007). It is not clear how many of these were actually deemed to warrant
further investigation.

The bulk of international terrorism financing takes place overseas and has
little to do directly with American banking institutions. US banks usually
find out only after the fact that they have had some tangential involvement
in such transactions, and are usually unable to steer clear of these
transactions because they lack the intelligence information that might have
forewarned them. This is not the case, however, for foreign banks which
maintain branches in the United States, but whose overseas branches may
engage regularly in such questionable activities. US branches of a handful
of overseas banks have been implicated in terrorism financing, and have been
used, knowingly, or unwittingly, to facilitate such transactions. The
problem is that transactions considered as terrorism related, and illegal by
the United States, are still viewed as quite legal by their foreign (non
American jurisdiction) banking regulatory regimes.

The EU has just recently begun to replicate many of the requirements
contained in the US Bank Secrecy Act. But, much of the rest of the world
still lacks such control measures. This is particularly the case in Saudi
Arabia, and the Gulf region in general. The Saudi Financial Intelligence
Unit (FIU) reportedly only got up and running in 2007 and there are still
many questions as to its role and effectiveness in combating terrorism
financing.

Working together with the EU and other committed foreign banking
jurisdictions, US regulators and financial institutions could have a major
impact on terrorism financing by holding foreign financial institutions
accountable through the long reach arm of their own laws, and through
imposition of increased due diligence requirements when it comes to treating
with such banking systems. This was the original intent of FATF
<http://www.fatf- gafi.org/ document/ 4/0,3343, en_32250379_ 32236992_ 33916420_ 1_
1_1_1,00.htm> ‘s so called NCCT list. It’s a shame that practice has been
reduced to almost nothing.

So, the fact is that we still have a long way to go, despite the
obligations, recommendations, and provisions spelled out by FATF and in
various UN Counter-terrorism resolutions, and the International
<http://untreaty. un.org/English/ Terrorism/ Conv12.pdf> Convention for the
Suppression of Terrorism Financing, in building an effective international
control system when it comes to combating terrorism financing. This is a
task we should commit ourselves to, not one we should abandon.

 

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