Terrorist financing

States of terror – terrorist resourcing, groups vs lone wolves

The biggest terrorist stories to hit the global media in the last few weeks have been the Charleston and Tunisia attacks, carried out by individuals, at least one of whom had set out his intentions in a published manifesto. Rather than falling FCA - gunshopprey to a particular group and shouting out their message, Dylan Roof – the Charleston massacre suspect – apparently ‘self-radicalised’ by reading various on-line sources of extremist material. There is no information, as yet, on where Seifeddine Rezgui, the gunman in the Tunisian attack, acquired the gun he used but there are some links between him and the Ansar al-Sharia group in Libya. One US media outlet asked Charleston Police how Roof was able to get his hands on a gun. “We will not discuss that aspect of the investigation”  a spokesman told the press.

Meanwhile in Egypt, the government has adopted a ‘controversial anti-terror law‘ speeding up prosecutions for terrorist related acts, laying out more severe penalties for those convicted and increasing the powers of terrorism investigators to examine bank accounts. The new law is a direct response to the killing of state prosecutor Hisham Barakat in late June.

Investigating terrorist resourcing – who supplied the weapons, how and any connections to known terrorist groups – might unearth some significant connections and information on who is behind terror attacks.

Resourcing v Financing

Research into terrorism has begun to notice a difference in approaches to investigating where the  money comes from. Changing perspectives on terrorist financing might highlight more gaps in our understanding of terrorism, why and how terrorist acts are committed.

Terrorist organisations use far more than money to maintain operations leaning on industries and infrastructure (IS has hijacked oil production in Iraq), criminal partnerships (the proceeds of crime fund terrorism too), commodities and more to generate funds. Moreover, the financial system as we know it is a minor player in some of the countries where terrorist groups thrive.

“Our understanding of terrorist financing is simplistic – funds flood the banking system, if we find it we can stop terrorists,” says Brenda Collins of ManchesterCF.

Source: Manchester CF

Source: ManchesterCF

“The resourcing concept is a much better fit with the risk-based approach (RBA) than the financing concept. The resourcing model turns the focus to the behaviour, the geographies, the industries, the materials. The financing idea often automatically pushes people towards transactions, senders and recipients.”

To learn more about the mechanics of terrorist resourcing – how different terrorist organisations resource their operations, how terror groups acquire funding channels and the red flags that can reveal terrorist resourcing networks, click here.

Mention the Financial Crime Asia blog to ManchesterCF to find out on special offers on training programs.


When Basic AML Training Just Isn’t Enough

Deutsche Bank is reportedly leading an internal investigation into an alleged USD6bn laundry, using ‘relatively FCAbasictrainingsimple transactions’ to clean cash. Simple transactions used to launder money should be easy to identify – if the software does not pick it up, then the employees handling the transactions should be able to spot a suspicion. Basic anti-money laundering training would guide someone to tell their AML team if something in a transaction does not look right. What if it did, and the message is still not getting through?


Regulated financial institutions spend money on ineffective training programmes; employees spend time attending training sessions that offer no new information on the subject or on how to approach the issue at hand. There are a myriad reasons why training programmes do not have the desired effect, but why do firms still use them?

They do so because they have little choice. A robust regulatory environment, a requirement to train all employees on the risks associated with financial crime and the spectre of a large financial penalty for not doing so have backed banks and other regulated firms into a corner. Gone are the days of leaving all knowledge of money laundering, terrorist financing, sanctions busting and bribery to the compliance department. In the present environment, we have to train all employees, management, directors and the C-suite on financial crime risks. And this, as compliance officers know, comes at a great cost to a bank.

Compliance generates no revenue – the compliance department is a straight-up cost centre. Although the argument that having an effective compliance programme in place could save you a few million dollars in regulatory fines is quickly gaining ground, compliance officers – it appears – are still bound by tight budgets. This is sometimes to the detriment of quality training, forcing compliance officers to compromise on the standard of training they want to deliver to employees.

Compliance budgets are larger than they were a few years ago. The coffers are deep enough to attract and retain talented individuals to maintain good compliance procedures in banks, and to ensure that every employee has at least a basic grasp of anti-money laundering, sanctions and anti-bribery and corruption requirements – how it works and who the ‘bad guys’ are. But compliance training where employees sit through another session on placement, layering and integration and learn nothing more relevant to their role, do not encourage anyone to think in terms of risks posed to their business line.

Beyond the money laundering cycle

Basic training has done a great job; meet bank staff from any division in a corporate, retail or investment firm and they will be able to trot out the three stages, and this was not the case five years ago. Except now, the information comes by rote – it is learned, absorbed, recalled when asked but is it really embedded into how bank employees do their jobs?

FCAadvancedtrainingAdvanced or more specific AML/CTF training courses on the market should address the particular risks posed by different areas of banking. Looking into trade based money laundering operations using examples and knowledge from people who have worked in trade financing first hand, not simply adding a few slides to a power point describing false invoicing would be a good start; but this is rarely the case.

It’s about the people, stupid

Global AML efforts are now hinged upon a risk based approach – the basic principle of applying most resources where the greatest risks lie. To do this, employees need to understand the risks – what they look like, where and when they can occur. The emphasis must be on engaging the learners.

“To combat financial crime and terrorist financing, the people who work with clients must be aware of the risks. Not just compliance and the firm’s financial intelligence unit, but front line business people in an institution.” Kim Manchester, a compliance veteran and CEO of ManchesterCF told Financial Crime Asia.

This rings true. The customer facing employees – whether private banking relationship managers or traders creating OTC derivatives – know their client well enough to offer them precisely the right product at the right time. They also should be able to know with the same precision when a deal does not add up. Compliance officers can erroneously believe that ML/TF is not an issue for some of the more sophisticated financial products. Let’s take derivatives as an example. Some compliance officers do not consider AML/CTF something that derivatives traders need to be concerned with and so they did not need training on this area.

This is a huge oversight which could end up costing a financial institution. Mis-priced derivatives contracts can be used as an instrument to launder money and to channel funds to bribe takers. If the traders who engineer these products are able to recognise and report unusual activity – such as a price that does not chime with the market – compliance training is hitting the mark. But if these traders are sitting through a course which spends only a fraction of the time looking at how financial criminals try to manipulate sophisticated products, they might never spot a suspicious transaction. AML/CTF training must reach far beyond the basic stages and into the specific business lines run by banks on the markets. Because this is where the real financial crime takes place.

Compliance Carols

This is the time of year to roll out the platitudes and look back over the past 12 months, at the high points and low points  and this blog is no exception.

2014 has been a great year for compliance, mainly thanks to the numerous investigations into rate rigging, market

Christmas Candle

Christmas Candle

manipulation and sanctions breaches which although on a global scale, have affected the Asia Pacific region.

Terrorist financing

Starting on a very sombre note, the Australian police force has arrested and charged two men with giving AUD15,000 to ISIS by funding flights for Australians who went to join the jihad in Syria. There is no evidence linking this to the tragic siege in a Sydney cafe in December, perpetrated by an apparently mentally ill man. Nor are their any direct links between that and the barbaric terrorist attack on a school in Peshawar carried out by the Taliban who murdered more than 130 people, the majority of whom were children. Who is funding the Taliban? The UK, US and foreign aid budgets have been variously named as unwitting donors. But that is all old news. Terror was still being funded in 2014.

Last Christmas I broke the law for you

BNP have claimed the top of the Christmas tree this year with their admission to breaching US sanctions on Sudan, Iran and Cuba, accepting the largest financial penalty to date issued for this type of breach, an eye watering USD8.97bn, which is roughly how much money it sluiced for sanctioned entities between 2004 and 2012. The penalty has focused attention on sanctions, and upon the intricate systems used by BNP to hide transactions.

He sees when you are grafting, he knows when you’r e on the take

Corruption gained a very high profile in APAC this year, with President Xi Jinping launching merciless attacks on former allies and fellow politicians who have skimmed from the national coffers. Although some view this as a political purge with corruption used as an overcoat, the message sent out is loud and clear: you’d better watch out, you’d better not graft.

Lonely this Christmas

Hong Kong’s Independent Commission Against Corruption officers will surely be celebrating this week  as it landed a prize scalp. A jury found HK’s former second official – Rafael Hui – guilty of accepting HK$8.5m (£700,000) from executives of the Sun Hung Kai Properties development company. The case has exposed the intricate links between the SAR’s government and powerful property developers; Hui’s case is the latest conviction. He is due to be sentenced in time for Christmas in Hong Kong’s jail, which will be a far less chilling residency than those of peers in Mainland China.

All you want for Christmas is a job in KYC

Recruitment in Asia Pacific compliance is still booming. Banks in Hong Kong are looking for lawyers to shore up their regulatory defences but all is not lost for those without a law degree. Back in August, recruiters in Singapore were crying out for customer on boarding and know your customer specialists, as well as project managers to fill posts. While the legal eagle-eye view on financial crime is still viewed as a safe bet, firms still need hands-on practitioners to do the real work.

Financially include the world

One of the biggest campaigns to gain ground in 2014 is the rally behind financial inclusion –  lead by various non-governmental organisations including the Bangkok head-quartered  Alliance for Financial Inclusion. Financial inclusion aims to provide appropriate financial services to those who are excluded from the financial sector and as a result, are at the mercy of ruthless money lenders, usurers and criminals who use exploitation – whether via labour or sex – to earn money. If you could borrow money from someone who would not try to sell you or your children into slavery, you would, wouldn’t you? If the world’s biggest banks are looking in earnest to change their reputations for the good, they could do worse than to reach out to the less profitable sections of society, who could do with some support.

12 corps avoiding… or is that evading?

To round off with some festive cheer, let’s all join in with a rousing chorus of the 12 Tax Dodgers of Christmas, 38Degrees’ reworking of a popular Xmas carol to highlight those who chose to hide their wealth rather than paying taxes in the country where they make their vast fortunes. Step up Amazon, Caffe Nero, Johnny Walker et al.

Or maybe it should be‘O come all ye shameful.’

First published on the ICA blog in December 2014.

Myanmar: Amended Anti-Terror Bill passes lower house.


The Lower House of Parliament in Burma passed an Anti-Terror Bill on Monday. Drafting of the bill began during a spate of bombings across Burma in 2013, including bombs in Rangoon’s Traders Hotel on 14 October and at an event held by monk Wirathu.


The Anti-Terror Bill was introduced in the Upper House on 20 January, which passed it without amendments three days later.


Despite last year’s attacks, the Bill is designed largely to block funding for terrorism, and was prioritised alongside an Anti-Money Laundering Bill ahead of increased Burmese engagement with the Financial Action Task Force (FATF), an intergovernmental body responsible for policy development in anti-money laundering and combating the financing of terrorism.


In January, Deputy Home Affairs Minister Brig-Gen Kyaw Kyaw Htun noted the importance of the bill in demonstrating Burma’s resolve against international terror. Kyaw Kyaw Tun noted the potential for further foreign sanctions should they not assure terrorist financing is blocked in Burma.


Saw Hla Tun, secretary of the Lower House’s Bill Committee, explained the amendments:


“We amended the bill to meet with international standardisations, conform to agreements and conventions Burma has signed or ratified as well as resolutions by the United Nations Security Council.”


As well as anti-money laundering laws, the amended Bill as passed by the Lower House contains 72 articles including offences concerning nuclear and radioactive materials and atomic facilities.


Burma signed an agreement with the International Atomic Energy Agency in September last year, paving the way for IAEA weapons inspections and beginning a process of de-mystifying Burma’s nuclear secrets.


CTF/Hawala: India-US crack down on Pakistan terror financing networks

India and the US held a side meeting at the Financial Action Task Force (FATF) plenary last week  to finalise plans for cooperation on identifying and closing down sources of funding to Pakistan terrorist groups. No details have yet emerged on which funding channels are being used to send money to terrorist groups which may be in Pakistan or are using Pakistan as a base for funding.

The FATF’s latest report on terrorist financing focused on the use of hawala, the traditional South Asian underground method of transferring money between cities and across international borders. Briefly, the FATF claims hawala is open to exploitation by FCA - Hawalaterrorist financiers for several reasons, principally:

  • a lack of supervisory will or resources
  • settlement across multiple jurisdictions through value or cash outside of the banking system in some cases
  • the use of businesses that are not regulated financial institutions
  • the use of net settlement and the commingling of licit and illicit proceeds.

A lack of supervisory resources and commitment to effective regulation seem to be the largest sources of concern vis a vis hawala.

This was underlined by news from the Australian Crime Commission’s Project Eligo operation last month, which identified terrorist financing channels built on the back of trafficking and selling narcotics between South America, Australia and the Middle East. The funds in the Middle East were then channelled back to South America to pay for more drugs. This could have been achieved via formal or informal remittance systems.

That said, it is worth remembering that the hawala network is vast, based on trust and used by millions of South Asians to remit money home. A friend of mine regularly received legitimate payments for group tours of India from elderly travellers via a hawala operator ensconced in a jewellery store. What is more, the term hawala is rarely used. Most people refer to the system simply as money transfer.

India-US join hands to crack down financial network of Pak group

New Delhi: India and the US have joined hands to crack down on the financial network and fund-raising activities of Pakistan-based terror outfits.

“India and USA have agreed to work together to crack the financial network and fund raising activities of Pakistan-based terror FCA - TerrorFinanceoutfits and individual terrorists associated with these organisations under the Framework of Indo-US Bilateral discussion,” Minister of State for Home RPN Singh informed Lok Sabha in reply to a written question.

The India-US bilateral meeting, held on the sidelines of the Financial Action Task Force (FATF) in October 2013, facilitated exchange of such information between concerned agencies of both the countries.

Singh said India and the US have also agreed to have cooperation between their agencies in fighting against counterfeit currency and illegal financial transactions under the aegis of the India-US Homeland Security Dialogue.

A sub group of “illicit finance, illegal smuggling of cash, financial fraud and counterfeiting” has been formed to work with the areas of information exchange, capacity building and technical/ research cooperation.

“US Homeland Security and Indian agencies are working together to investigate sources of material and technologies used in the production of FICN,” he said.
Source: ZeeNews 

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News round up – corruption focus

English: This is a picture I took when I went ...

English: This is a picture I took when I went to Iguazu Falls myself. Let me know if you like this one, because I have several other pictures I could add also. You are free to use this picture anywhere as long as you credit me. If it’s going to be outside of Wikipedia, please let me know so I could give you a name I want to be credited by, and I also just simply want to know where it’ll be used 🙂 (Photo credit: Wikipedia)


National holidays in every country often mean an exchange of good will, good wishes and gifts.  Years ago when I worked in a jeweller’s shop in my home town, the shop owner would give a bottle of whisky to the local police officer – the ‘bobby on the beat’ – as a thank you for calling into the shop from time to time, and sending a message to potential thieves that the shop, its contents and staff were on the police radar.  Up until I left, 20 years ago, this was still common practice and neither the bobby nor my boss saw it as bribery. In 2013’s bribery and corruption conscious world, police officers in the UK would probably not accept a ‘thank you’ gift from a shop keeper. I’ve known HM Treasury officials to turn down small gifts for speaking at conferences in case the intent behind the gifts were misconstrued. But in some parts of the world, corruption and bribery are still going strong.


Seasonal bribery – Mid-Autumn Mooncakes


This week’s Mid-Autumn festival in the Chinese calendar does not escape the notice of corruption watchers. Dubbed a ‘harvest of mooncakes and corruption’ by this article in The Diplomat offers a nice cultural explanation of why people give Mooncakes at this time of year and the Sydney Morning Herald examines how China’s crack-down on corruption is affecting sales of these seasonal pastries.


Match fixing in Singapore


Police in Singapore have arrested 14 people on suspicion of football match fixing. The gang were connected to match fixing in the Champions League and World Cup qualifying rounds, according to a report in The Straits TImes. The gang’s leaders influence allegedly stretched to most European football leagues; match fixing allegations have been the focus of investigations by Europol.


Last weekend, police in Australia arrested six people in connection with match fixing allegations including four players – who are all British citizens – a team coach and the alleged ring leader. Investigators have alleged that five matches played by the Southern Stars team between July and September were fixed. Read the this report in the Canberra Times for more details. This great report from the same source outlines how illegal sports gambling has developed with the globalisation of legitimate sports betting.


Hezbollah uses proceeds of crime to fund acts


We used to say that terrorist financing is the process of using clean money to fund dirty and deadly practices. But according to this report in the Central Asia Online, the Lebanese terrorist organisation is using the laundered proceeds of drug trafficking and smuggling to fund the organisation, with many donations coming from organised crime groups in the tri-border area of Paraguay, Brazil and Argentina. Cuidad del Este, the Paraguayan City on the edge of the Iguazu Falls has long been on the US Drug Enforcement Authority and US Treasury’s radar as a haven for smuggling.


Life for Bo Xilai


Bo Xilai, the former governor of Chungquing, has received a life sentence for his part in a large scale corruption scandal which came to light after the murder of a British man in November 2011. In a parting shot, Bo Xilai called the verdict unjust in court before he was led away in handcuffs by guards. Bo was sentenced for accepting bribes worth 20.4 million yuan (HK$25.7 million), 15 years for embezzling 5 million yuan and seven years for abuse of power by demoting his former police chief, Wang Lijun, reported the SCMP. The sentences will run concurrently.


















There’s gold in them there hills… how to acquire bitcoins

Following on from the last ‘blog about Bitcoins, I spoke to a Bitcoin user and enthusiast to get the low down on acquiring, using and losing Bitcoins.
Getting your hands on a Bitcoin is easier now than it was when they were first launched in 2009.
New coins are ‘mined’ by cyber-prospectors armed with computers and algorithm cracking software programmes, instead of tin pans and shovels. A miner with enough computing power sets a computer to solve a series of complex puzzles which surround each Bitcoin. Once all the codes are cracked, the user receives one freshly mined Bitcoin in his wallet. So far, miners have found around half of the 21m Bitcoins which will ever be produced. Their labours have created a thriving market for the sale and exchange of Bitcoins, which is good news for other potential Bitcoin users.
Although the mining process is complicated, the exchange of value is simple once you have some Bitcoins in your wallet. Virtual currency exchanges such as Mt Gox and Crypto-exchange were set up sell Bitcoins, in the same way a Forex dealer buys and sells currencies, charging a percentage of each transaction as a fee. Individual sellers will also trade Bitcoins for other currencies.
How to use a Bitcoin
Apart from fancy cars, Bitcoins can be used to buy an increasing number of goods. Real estate agents in Australia and Canada have started to accept Bitcoins for their services.  Some individual online sellers are offering to accept Bitcoins for property sales without an agent. In theory, this transaction could go ahead without the intervention of government however there could be national tax implications which potential buyers should investigate.
In Argentina, Brazil and Peru Bitcoins are used to rent cars and pay hotel bills. Numerous Latin American countries have expressed interest in installing Bitcoin ATMs, cash machines which accept the national currency and put crypto-currency into your virtual wallet. There is a chance that Bitcoins could subvert US$ as the alternative currency of choice. As with cash, if it can be used to buy legal goods, it can be used to buy products on the black market.
Silk Road is a virtual market place which is famous for the anonymous trade in Bitcoins for drugs, tools for hacking computer programmes and other illegal as well as legal products. It can only be accessed via a web browser which makes the user’s IP address anonymous, so transactions cannot be traced. Silk Road’s only physical identifier is a piece of code on a server which probably changes regularly enough to keep the hackers at bay.
The market place’s estimated annual turnover of USD$20m makes it a healthy enterprise which is the target of cyber-attacks. Buyers and sellers are still taking huge risks to smuggle drugs and receive the deliveries, which is where law enforcement could try to intercept sales. The only difference between buying on Silk Road or buying from your local drug dealer that you’ll never have to meet in person to make the handover.
How to lose a Bitcoin
Bitcoins are essentially strings of highly valuable code which means hackers and cyber crooks all over the Internet are dedicating a significant amount of effort to stealing Bitcoins from users’ virtual wallets. Backing up your computer hard drive will download the security updates issued by the Bitcoin Foundation to protect your wealth. Storing the Bitcoins off line on a USB stick removes the online threat but increases the actual theft or loss risks. Losing your offline Bitcoins is the same as losing your wallet. Crucially, users should ensure they have an updated block chain which will maintain the coin’s currency and the universal record of transactions. There is also the risk of hackers attacking Bitcoin exchange, which accept fiat currency for Bitcoins. The Australian Crypto Xchange was the victim of a large scale hack which lost money stored for clients and was closed down in November 2012.
As an observer, I’d be interested to hear from banking professionals about how and if they think Bitcoin is a real threat to fiat currency and mainstream banking. Please do comment.

Indonesian AML and counter terrorist financing efforts

In February, the Financial Action Task Force placed Indonesia on its list of jurisdictions with strategic anti-money laundering deficiencies. Despite the potential impact on financial aid the listing could have, Indonesia is still unable to pass effective rules on counter terrorist financing. The FATF recommended Indonesia address three specific points:

(1) Adequately criminalising terrorist financing (Special Recommendation II);
(2) Establishing and implementing adequate procedures to identify and freeze terrorist assets (Special Recommendation III); and
(3) Amending and implementing laws or other instruments to fully implement the 1999 International Convention for the Suppression of Financing of Terrorism (Special Recommendation I).

In March, Indonesian police officers from the notorious and elite Detachment 88 anti-terrorist squad. Officers shot and killed five suspected terrorists, who were funding planned attacks through armed robbery, targeting gold dealers and currency exchangers. This typology is well aired among the Indonesian banking compliance unit and the arrests put Indonesia’s CTF efforts on global news wires.

INCSR analysis

The US Department of State’s International Narcotic Control Strategy Report also highlighted endemic corruption as a chink in Indonesia’s AML/CTF armour.

Indonesia has a weak AML/CFT regime, according to the INCSR assessment, a cash-based economy, weak rule-of-law and ineffective law enforcement institutions, the presence of major indigenous terrorist groups combined reduce the impact of international standards and national law.

Non-drug related crimes generate the majority of money laundering activity: corruption, illegal logging, theft, bank fraud, credit card fraud, and maritime piracy, sale of counterfeit goods, gambling and prostitution.

Banks are already required to follow enhanced due diligence procedures for both foreign and domestic PEPs. Although the FATF recommendation on this was only made official in February this year, many financial institutions in Asia, perhaps influenced by other industry groups, had already adopted monitoring domestic PEPs as best practice.

KYC covered entities: Banks, finance companies, insurance companies and insurance brokerage companies, pension fund financial institutions, securities companies, investment managers, providers of money remittance, and foreign currency traders. NB High value goods dealers and lawyers are not covered by KYC rules.

Convictions and the law

There were four convictions for money laundering between January and October 2011.

In October 2010, the Government of Indonesia enacted a new AML law that partially complies with international standards. To meet international standards and ensure effective implementation and enforcement of the law, INCSR recommends staff in both the executive and judicial branches should receive more training on AML/CTF.

The PPATK – Indonesia’s Financial Intelligence Unit  – needs a significant increase in staff to meet its responsibilities under the law. In an effort to place some of the legal burden on industry and bank partners, PPATK plans to open three AML centers in different regions of Indonesia to serve as resource centers for organizations that must comply with the new regulations. There is hope that this will place some of the legal burden on AML/CTF on to practitioners and bank partners. How this will happen remains to be seen and will be a focus of discussion at the 4th Annual ACAMs Conference in early April.

Despite a reported high-level commitment to the action plan developed to address some of the persistent gaps in its AML/CFT legislation, the government has not met its projected timeframes. Essential draft CFT legislation will not be submitted to parliament until at least early 2012.

The October 2010 AML legislation only provides for the temporary suspension of terrorist assets linked to the UN list of designated terrorists and terrorist organizations and does not allow for an immediate and ongoing freeze.

Corruption, particularly within the police ranks, impedes effective investigations and prosecutions. Prosecutors and judges should be given additional training on tracing and documenting financial flows and presenting this evidence convincingly in court.

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