Global effort to curb money laundering


THREE DAYS before Sept 11, 2001, Mohamed Atta, the man who piloted American Airlines flight 11 into the North Tower of the World Trade Centre (WTC) in New York, wired out a total of US$7,860 from two grocery stores in Maryland. On Sept 10, Marwan al-Shehri sent US$5,400 from a Greyhound bus terminal in Boston before he commandeered United Airlines flight 175 the next day, crashing it into the WTC South Tower. In both cases, the recipient of the funds was a terrorist support network based in the United Arab Emirates (UAE). 

The events of Sept 11 are well known. And compared with the sheer tragedy of that fateful day, these transfers of a few thousand dollars would appear unremarkable and seemingly unrelated. 

To the US Federal Bureau of Investigation (FBI), however, these money transfers form crucial pieces of a wide web of evidence around the globe which suggests that the world’s financial markets and banking systems have been, are, and will continue to be used as staging points for such acts of atrocities.  

If one were to draw parallels between the operations of terrorist organisations and those of large international corporations (both having clear objectives, layered structures and multinational locations), it is not too much of a stretch to imagine that one of the most crucial operational aspects of both types of organisations would be in their funding capabilities. 

According to the FBI, finance has always been recognised as an important function in the most effective terrorist groups. Like hands-on CEOs and senior managers, “Al-Qaeda leadership directly guided and funded major terrorist attacks and operations.” 

Dennis M. Lormel

Following Sept 11, the FBI traced numerous money transfers totalling over US$100,000 from the UAE to SunTrust Bank in Gulf Coast, Florida via Citibank New York, credited in favour of Atta and al-Shehri. These transfers happened one year before the attacks, and the funds were believed to have been used as working capital for Al-Qaeda operations in the US. The FBI estimated that the entire Sept 11 operation cost the group approximately US$600,000. 

It was clear that had these funds been detected early, it is possible the attacks on Sept 11 may not have succeeded.  

The ability to trace, investigate and disrupt terrorist-related financial activity thus took on a new urgency and led the FBI to establish a unit within its counterterrorism division looking specifically at money flows. 

So how much more was being harboured by terrorists? Thousands? Millions? Or perhaps, even billions of dollars?  

Senior FBI officer Dennis M Lormel, who heads the bureau's Terrorist Financing Operations Section (Mission: Develop terrorist identification mechanisms to disrupt and dismantle terrorist organisations and their funding mechanisms) was unable – or perhaps, understandably, unwilling – to pin down an exact number. 

But he told StarBiz it was “quite considerable.” Lormel said he was concerned the sources of terrorist financing and means of transfer were changing and becoming more diverse and innovative as the traditional channels become known or restricted. 

In order to avoid detection from regulatory, intelligence and law enforcement agencies, terrorist organisations were using both formal (bank accounts, wire transfers) and informal methods (alternate remittance systems or hawalas, couriers, shipment of bulk cash) to transfer funds. 

He said terrorists were similarly sourcing their funds from both legal and semi-legal means such as donations to charities and NGOs, to illegal funds from drugs and arms trafficking, as well as from other crimes such as credit card fraud.  

According to the FBI, some terrorists like Riduan Isamuddin (aka Hambali) established “front” NGOs to raise funds, buy arms and send terrorist cell members for training in Afghanistan while others, like Saudi Arabian-based charity Al-Haramain, were “corrupted” by the infiltration by terrorist groups and radical elements. 

Hambali, according to the FBI, also established a successful business which procured government contracts to supply water pipes and school stationeries and the profits were used to further his cause. 

Lormel, whose visit to Kuala Lumpur last week was to “promote awareness and share information” with Bank Negara and Malaysian banking community, said the challenge for enforcement agencies around the world was in identifying the sheer variety of mechanisms used.  

Terrorist financing, he said, was an element of the bigger problem of money laundering which often resulted in the “exploitation of financial institutions.” 

There is little doubt the banking and financial systems are at the heart of this problem. “Moving money through certain financial markets is more difficult, so the terrorists are looking for alternative means,” Lormel said. But are financial institutions listening? 

According to Peter Gallo, director of anti-money laundering consultancy Pacific Risk Ltd, banks and financial institutions worldwide were not; or if they were listening, they didn’t do enough to curb the threat. 

In a strongly-worded letter to the Paris-based Financial Action Task Force on Money Laundering (FATF), Gallo said he was concerned at the often blasé approach of financial institutions.  

“Of particular concern is the attitude? as regards terrorist financing, that nothing can be done to prevent it, so therefore it is a waste of effort and time to try,” he said. 

Gallo said he “disagreed in the strongest possible terms” and suggested that this attitude was an untenable partisan argument by financial institutions “to avoid additional compliance costs.” 

He said undue emphasis was made on customer identification with insufficient attention paid on the source of funds.  

“The finance industry can, and should conduct enhanced proactive investigations into the background of their customers and source of funds,” said Gallo, adding that this was a crucial anti-money laundering process which was still not actively practised.  

He said that recent international efforts to curb money laundering and terrorist financing were pushing ever increasing compliance responsibilities onto the private sector. In addition, legislation targeting money laundering at banks and other financial institutions were forcing criminals to move away from the traditional methods, into more sophisticated schemes, often utilising “non-bank financial institutions”.  

“As a result, modern money laundering schemes can be incredibly subtle and sophisticated, and many executives in the financial sector today are unaware of their vulnerability to this form of criminal activity,” he said. “It is no longer possible to assume that money laundering is somebody else's problem.”  

According to Gallo, companies especially financial institutions should have written anti-money laundering policies and procedures as well as a designated money laundering compliance officer, “with the resources and the seniority to do his job effectively.” 

Malaysia, as a member of the FATF sub-group Asia/Pacific Group on Money Laundering (APG), has made a commitment to implement legislation and other measures based on 40 FATF Recommendations intended to curb money laundering.  

With the enactment of the Anti Money Laundering Bill 2001, financial institutions have also had to put in place more stringent measures and mechanisms to fight against money laundering. 

The task, however, is a long and arduous one. Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz said as much in her keynote speech to APG annual meeting in Kuala Lumpur in 2001. 

“Money launderers are swift in probing the financial system for vulnerabilities and using their ingenuity to devise new methods to circumvent the system and adapt their methods to exploit these vulnerabilities,” she said, warning that virtually any financial service provider could be used as a vehicle. 

“To effectively combat money laundering, the whole financial system has to be vigilant and work together,” she added. 

FBI's Lormel who was “impressed” with Malaysia's commitment said effective international cooperation between countries, as well between government agencies and banks was essential to curb both terrorist financing and money laundering. “That’s why I am here.” 

Nevertheless, he said, the FBI's counterterrorism unit has only “progressed incrementally” in reaching its objective, and Lormel reckoned there was still a long way to go. “I think I would be gainfully employed for a long time,” he said. 

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