Terrorism Financing: Past, present and future
Wednesday, October 25, 2017
Posted by: Brian Monroe
By John Wintrow
October 25, 2017
Recently, we observed the sixteenth anniversary of 9/11, recalling the tragic loss of life and the sustained terror threat that still exists. Numerous articles pertaining to the anniversary have been published; however, little has been written from a financial crimes perspective.
In this article, we will recall what was believed to be one of Al Qaeda’s (AQ) primary means of funding its operations, discuss the current state of terrorism financing, and take a glimpse at what the future may hold.
We will also analyze that while new and stronger laws have been enacted in the United States and globally to counter organized criminal and terror groups, more can and needs to be done by both governments and the private sector, including more cooperation, coordination and information sharing domestically and internationally.
Moreover, while we know there is no silver bullet to uncover terror plots at home or abroad – governments are on high alert for small cell and lone wolf attacks, particularly with an estimated thousands of foreign fighters coming home to places like the United Kingdom and Europe – there are steps that can be taken to make it more difficult for groups to fund themselves when and where they touch the formal financial system.
Some of the ways to make it harder for terror groups to fund far flung cells also make it harder for a wide range of criminal groups to move ill-gotten gains, including:
· Remittance ID thresholds: Some money services businesses (MSBs), particularly those operating in countries near terrorist conflict zones, have lowered or are considering lowering their customer identity thresholds from a few thousand dollars to a few hundred dollars or asking everyone for ID regardless of the remittance amount.
· Artificial intelligence: Banks, regtech firms and investigativce agencies are currently tinkering with the possibilities of using artificial intelligence (AI) and machine learning to uncover terror ties in a broader range of transactions. The technology would scour unstructured data to uncover patterns of movement, support networks and connections that could be missed with current scenarios and transaction monitoring systems because the amounts are too low and actions too diffuse and scattered.
· Coordination, cooperation: The United States is pushing to expand bank protections for sharing information with each other on suspected criminal and terror activities, along with being more aggressive in sharing information on potentially illicit individuals or companies with banks directly – rather than doing broad queries on entities as is the case now, more of a one-way street. More countries are also creating mechanisms to share case information more quickly, including by querying banks.
· Shell game: Part and parcel of the reason the United Kingdom, Europe and to a lesser degree, the United States, are cracking open anonymous shell companies is they are a magnet for criminals groups and have been used by terror financiers to hide their support of foreign groups.
· KYC 2.0: More banks are requiring deeper details on customers, not just to gauge expected activity and craft more accurate risk scores, but to see where they will be transacting and with what companies and counterparties to ferret out ties to businesses, charities and operations near war torn areas that could support terror groups. Banks are also swimming social media details into KYC and risk scoring efforts, in some cases finding ties to risky regions missed initially.
· Trade transparency: U.S. and international investigators are also giving more scrutiny to the import/export sector to uncover trade-based money laundering schemes with ties to terror groups. Banks are critical to many large trade deals and have sophisticated systems to risk rate and screen entities for ties to rogue regimes and ties to terror groups, generating leverage to garner more details from the companies involved in trade deals.
· Criminal convergence: It’s important to realize that terror groups also use many of the classic red flags of money laundering, including structuring deposits, wires below ID thresholds and funnel accounts. In recet years, more terror groups have formed formal partnerships with international organized criminal syndicates, creating dirty money to fund their attacks. This means banks and investigators must also be looking at suspected money laundering transactions through the lens of terror funding.
It is a common falsehood that Usama Bin Ladin (UBL) funded AQ from his private coffers. In reality, AQ’s war chest, according to the 9/11 Commission, pre-and-post 9/11, was believed to be between $25 million to $30 million a year.
The Commission also approximated UBL’s annual family inheritance to be around $1 million, which was clearly not enough to fully fund AQ’s operating budget. The actual sources of AQ’s financing are believed to be from charities, crime, legitimate businesses, wealthy financiers, and state sponsorship.
However, it is questionable if we will ever truly know. What we do know is that UBL fostered trusted partnerships offering solutions to facilitate the movement of funds as soon as they could be acquired.
This means that UBL took a concerted effort to partner with trusted networks of supporters to raise and distribute the necessary funds to support AQ. One of AQ’s biggest hurdles was identifying methods to disperse funds as soon as they were raised.
What was perhaps even a bigger issue was that UBL needed a way to transfer funds to operatives located in remote areas of the world, where banking systems simply did not exist.
To overcome these challenges, one of UBL’s documented partnerships included a network of money remitters with “hawala”-like properties.
For those not familiar with how a hawala operates, it is an ancient, and informal system of transferring money, which predates established banking by thousands of years. Most hawalas are legitimate; however, when exploited, they can effectively conceal the redirection of funds to terror groups.
A network of money brokers, or “hawaladars,” provided UBL with paperless banking transactions and enabled the ability to send money without the funds ever crossing borders or being recorded.
The only time a hawala network, or hawaladar, ever touches the formal banking system – such as a bank or money services business – is when one party in a given region needs to settle accounts, either getting funds from a partner hawaladar or paying that partner.
But because the transaction will on paper or in a transaction monitoring system simply look like a remittance or wire between two businesses, one may even be an MSB, there is really no way for an AML analyst to know the underlying customers involved did several transacitons tied to individuals involved in supporting terror groups.
The role of MSBs in funding terror networks, wittingly or not, was discussed in the 9/11 report.
The money remitter business, Al Barakaat Exchange LLC (“ABE”), headquartered in Dubai within the United Arab Emirates, for instance, is discussed in the 9/11 report, and is described as the principal source of funding, intelligence, and money transfers for AQ.
Although ABE was investigated by the Federal Bureau of Investigations (FBI), credible evidence that it was a money laundering instrument never materialized.
In mid-2002, U.S. Treasury Office of Foreign Assets Control (OFAC) analysts were tasked to demonstrate that each and every ABE individual was initimately involved in the funding of terrorism and that each belonged to an entity that predominantly supported terrorism.
There was no such evidence produced, although the OFAC analysts remained critical of the fact that they were not provided with sufficient access to classified information, as well as being denied information obtained and held by the FBI. Subsequently, the FBI closed the investigation.
Following 9/11, the USA Patriot Act was born, and over the last 16 years, the United States has instituted other formal procedures for the surveillance, regulation and documentation of financial transactions, expanding the ability to counter terrorism financing.
Additional regulations implemented over the years also include the establishment of programs such as Know Your Customer (KYC), Customer Due Diligence (CDD), and Enhanced Due Diligence (EDD), along with “special measures” designed to strengthen the Bank Secrecy Act (BSA).
We know that even today, terrorists use a variety of methods to move money. For example, here are some of the most common methods used to finance terrorism:
· Exploitation of formal banking systems
· Cash couriers
· Informal money remitter systems (e.g. hawala)
· False trade invoicing
· High value commodity trading
We also have learned that there are several factors considered by money brokers when formulating the methods to be used when moving money, such as the overall volume, risk, convenience, simplicity, costs, and the speed in which money is transferred.
Most importantly, we have learned that UBL was quite aware of the U.S. financial system’s vulnerabilities, and how to exploit them.
With all of the initiatives put forth by the U.S. government to combat terrorism financing, can we safely say that we are close to abating terrorism financing? Let us look to the future to see if an answer can be found.
In order to counter something, one must identify the elements that permit its existence.
We know that terrorism financing is comprised of three primary elements that sustain acts of terror, which consist of the ideology, the people, and their finances. In the last 16 years, we have learned that it is extraordinarily difficult to sway believers from unsubscribing to the radical ideology, and even more irrational to eliminate all of the people who embrace it.
This leaves us with targeting terrorism financing as the weakest of the three elements to target.
But to know where to best put investigative resources, you need to peel a layer deeper to the factors that foster terror finance. Terrorism financing in the past and present have identified certain elements as desirable for terrorism financing, which are, “…volume, risk, convenience, simplicity, costs, and speed.”
We can safely predict that future endeavors may include all or some of these same elements.
As the future unfolds, it is wise to reflect upon the past. We can see that technology is advancing at light speed with the rise of virtual community platforms, virtual currency, digital currency and startups designed to provide internet-based platforms with encryption.
All of those technologies – while a potential boon to global finance by increasing the speed and lowering the cost of transactions – also provide opportunities to aid organized criminal groups and terror financiers by making it more difficult for investigative agencies to detect nefarious activity, especially terrorism financing.
With the advancements in technology, and changes in the traditional way of transferring currency, in just the last sixteen years alone, the rise of cross-border and e-commerce platforms for shopping has led to a demand for alternative means of currency exchange, all of which can be exploited to finance terrorism.
Finally, with the sheer speed of transactions allowing for monetary transfers of possibly unlimited sums, terrorist funds can change hands across countries instantaneously.
Part and parcel of that challenge is that in some cases terror financiers can put their money into virtual currency exchanges anonymously – for instance, using prepaid cards purchased below identity verification thresholds, remittances also below ID reporting limits or working behind anonymous shell companies in jurisidictions with weak financial crime countermeasures.
According to the 9/11 Commission Report, we know that the attacks of 9/11 cost somewhere between $400,000 and $500,000 to execute their plan. In the last five years of successful terror attacks, the costs are in the hundreds of dollars, and in some instances cost nothing at all.
Tactics include the use of weapons such as axes, vehicles used to plow into pedestrians, shootings at nightclubs, shootings at concerts, or engaging a strategy as simple as the cost of a gallon of gas used to make a molotov cocktail.
Substantially the cost of financing terrorism today and in the future, is miniscule by comparison to our past, putting more pressure on several areas of the AML programs and raising the need for broad-based expertise in financial crime investigations to uncover the red flags of terror in diffuse, scattered and seemingly unrelated patterns.
As we become better at disrupting terrorism financing, we must not forget that those in the terrorism financing world are also adapting, exploiting, and advancing the means and methods of moving funds at a faster pace than the U.S. financial system is able to regulate. Furthermore, we have yet to stop it.
New Regulations such as Benificial Ownership are indicators that the government is seeking help in identifying those individuals at the onset of the establishment of an account, and the true identity as well as purpose of the account.
As we move into the future, we are learning the value of robust KYC, CDD and EDD programs and the importance of a streamlined process for relaying information from the financial sector to the appropriate agencies and vice versa to better arm banks in knowing what entities, companies and red flags to look for, a constantly evolving challenge.
~ Is your financial institution proactively looking to the future?
At AML RightSource, our Financial Crimes Advisory practice has helped multiple financial institutions build a robust and comprehensive framework for identification and evaluation of enterprise risk, in addition to developing long-term risk mitigation strategies.
For more information about our practice, please visit http://amlrightsource.com/financial-crimes-advisory-services/.
About the author:
John Wintrow, ICPS
Manager, Financial Crimes Advisory at AML RightSource, a Gabriel Partners Company
John Wintrow is a Manager within the firm's Financial Crimes Advisory practice, operating out of the Phoenix office. He is a Certified International Crime Prevention Specialist (ICPS) with more than 30 years of collective law enforcement, military, and intelligence community experience, spanning both corporate and government arenas.
He formerly headed threat intelligence and investigations and designed an extensive data analysis platform aiding trend analysis and anomaly detection of targeted terror threats. Wintrow is also a global leader in the domain of foreign terror organizations' exploitation of social media and headed counterintelligence efforts for a federal government agency.
He has taught graduate courses in Criminal Investigations, Counterterrorism, and Management of Cyber Investigations. He obtained his Bachelor of Arts in Public Administration from Ottawa University and holds a Master of Arts in Strategic Security Studies in Counterterrorism from National Defense University, College of International Security Affairs.