US lawmakers looking at ways to earmark funds from financial crime penalties to aid agencies

At least two influential congressional lawmakers are exploring how to retool the laws around financial crime penalties and forfeitures to earmark a certain percentage of funds to go back to the foreign and domestic law enforcement agencies involved in investigating such cases.

Pennsylvania Republican Mike Fitzpatrick, who chairs the Task Force to Investigate Terrorism Financing, and sits on the House Financial Services Committee and task force vice chair, Republican Robert Pittenger of North Carolina, who is also on the committee, are having staffers check into the issue after comments by a witness at a hearing on financial crime last week.

The suggestion to change how anti-money laundering (AML) and sanctions-related penalties and forfeitures are doled out came during the hearing, entitled “A Dangerous Nexus: Terrorism, Crime and Corruption,” by witness Celina Realuyo, a professor of international security affairs at the National Defense, Georgetown, George Washington, and Joint Special Operations Universities.

As part of a broader, multi-pronged plan to better go after organized crime groups, terrorists and corrupt political power brokers, she put forth a plan to “dedicate a percentage of forfeited assets and/or fines levied on financial institutions for sanctions evasion, money laundering and compliance infractions to domestic and international capacity building programs,” potentially around 15 percent.

The funds, rather than going back to a general Treasury fund, could then be earmarked to go back to the federal investigative agencies involved in complex money laundering and sanctions evasion cases, operations that, on the whole, have suffered budget cutbacks and have faced challenges in hiring new investigators or even traveling to do any kind of training or attend industry-related conferences, she said.

The agencies that would likely benefit would include the US Treasury’s Financial Crimes Enforcement Network, Office of Foreign Assets Control, IRS criminal investigations division, and others, said Realuyo,  a former U.S. foreign policy advisor under the Clinton and Bush Administrations and State Department Director of Counterterrorism Finance Programs.

Even in the “ballpark of 15 percent is not a crazy number, but it’s not nominal either,” she said, noting that the size of recent AML and sanctions-related penalties including figures of $2 billion and nearly $9 billion. “These agencies found the money, so a portion of the fines being paid by these banks should go back to the people working on those crimes.”

The funds could even be put into a training or travel fund for the agencies to be able to train new agents on the latest exotic financial crime schemes, such as crypto currency, or could enable travel to conferences to better arm banks and other financial institutions about the latest criminal strategies, Realuyo said.

Most likely, the way current practices would need to be changed would be through a formal bill or tacked on to a larger omnibus budget, defense or other package, though staffers are still analyzing the best way to proceed.

Lawmakers during the hearing also discussed the possibility of increasing the use of Patriot Act, Section 311, the designation of a country or entity as a “primary money laundering concern,” against groups like car dealers engaging in deals with West Africa that later benefit designated terror groups, such as Hezbollah.

Some the examples of criminal, terrorism and corruption conversion cited in hearing documents include:

  • Afghanistan and Pakistan, where extremists, including the Taliban and other insurgency-associated armed groups, also profit from a booming illicit opium trade that is largely facilitated by corrupt officials;5
  • Latin America, where terrorists, including the Foreign Terrorist Organization designated (FTO) Revolutionary Armed Forces of Colombia (FARC) and the Shining Path in Peru control the majority of the world’s illicit cocaine cultivation and production, and cooperate with corrupt government officials in countries such as Venezuela, other international terrorist groups, as well as transnational criminal groups that smuggle a wide range of contraband into the United States;6
  • Libya, where political instability since the fall of Muammar Gaddafi’s regime in 2011 has attracted Al Qaeda-affiliated groups and IS-aligned extremists that profit and contributed to a significant uptick in criminal consolidation of power and the flow of illicit weapons, migrants, and goods throughout the region;7
  • West Africa, where entrenched kleptocratic regimes such as Guinea-Bissau and a confluence of illicit actors have contributed to the region’s emergence as a major narcotics transit point and connected terrorist-affiliated migrant-, cigarette-, and weapons-smugglers with age-old nomadic trade routes through the Sahel, where groups such as Al Qaeda in the Islamic Maghreb (AQIM) operate.

The lawmakers realized that these groups are “totally in to convergence,” Realuyo said. “There are basically four ways we think about threat finance: raising, moving, storing and spending money. But whether they are terror or criminal, they are all doing it the same way, so investigators should be looking at it altogether.”

The fruits of such a mantra played out in one recent investigation into the financials behind drug trafficking related to the Sinoloa cartel in Mexico, she said, noting that though that was the chief aim of the investigation, it ended up uncovering a massive political corruption scheme tied to the head of a large teachers’ union.

Some of the other suggestions to bolster the US response to criminal and other groups are:

 

  • Dedicate more financial, human, and technological resources to government agencies, like financial intelligence units, responsible for investigating and prosecuting terrorist financing, money laundering and other financial crimes.
  • Enhance U.S. and international financial intelligence and information sharing to combat terrorism, crime and corruption.
  • Retain the Afghan threat finance cell and consider establishing new threat finance cells to counter emerging threats such as ISIL to conduct more effective targeting.
  • Maintain a vigorous designation and sanctions regime against state sponsors of terrorism, foreign terrorist organizations, transnational criminal organizations, foreign narcotics kingpins and specially designated nationals.
  • Revive the Terrorist Finance Working Group, established in the wake of the tragic September 11, 2001 attacks, to coordinate U.S. government efforts to combat terrorist financing via designations, the enforcement of sanctions and technical assistance and capacity building programs.
  • Promote public-private partnerships; raise awareness among bank and non-bank financial institutions of emerging trends in money laundering and terrorist financing to empower the private sector to serve as the eyes and ears of governments to detect financial crimes.
  • Anticipate how new financial innovations, services, technology could possibly be used and abused by terrorists and criminals to finance their operations.

Although terrorist organizations and criminal actors have different motives in their quest for finances, these groups may cooperate with each other in order to achieve their own objective, Fitzpatrick stated in a blog post related to the hearing.

Beyond individual anecdotes and case studies, a 2014 network analysis by the Combating Terrorism Center at West Point suggests that criminal and terrorist groups may be highly interconnected, he said.

“Terrorist groups have become entwined with trans-national criminal syndicates or, in some cases, evolving into the role themselves – engaging in criminal activities which yield greater profits than simply relying on state sponsorship or big pocket donors,” Fitzpatrick said in the statement.

“These activities range from, but are not limited to, corruption, drug trafficking, human smuggling and extortion. It is this type of connection – the intersection between terrorism, crime and corruption” that should be weighed against the “current techniques being used by these groups, effectiveness of the current U.S. policy in combatting them, and where these tactics can be improved upon.”