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| The case
for a new discipline in fighting terrorist finance |
|
The term is as
emotive as it is ominous. ‘Terrorist finance’ sends
a shiver through any manager of a bank, any compliance officer,
any police or customs official. The use of your bank by a terrorist
to finance his activity is unthinkable. The opprobrium from the
public and powers-that-be is likely to be disastrous for years
to come.
Doing nothing
in the face our ongoing threat from terrorist financing is
not an option. But what? That is the bank’s dilemma.
First, understand that conventional anti-money laundering
tools do not suffice. TF and AML are emotively linked. The rhetoric
post September 11 muddied the waters. Systems that detect terrorist
money are differently programmed to those set to ring at a money
laundering suspicion. |
Why and where
is the difference? Just as speeding cameras are programmed to
detect the behaviour of vehicles, so bank systems, with basic
AML software, detect the erratic or unusual behaviour of money.
But to continue the analogy with money laundering systems, we
are now asking cameras not just to detect if the car is going
too fast, but also if the driver is drunk.
Where is the difference? First, the terrorist dollars are
likely to be packaged in small parcels so that they do not
cause the creation of a suspicious activity report. It comes
as no surprise to professional trackers of terrorist money
that transactions by the 9/11 terrorists attracted not a single
SAR.
Second, the terrorist uses the financial system in exactly
the same way as most honest users, that is to move money in
a straight line from one point to another. The result, terrorist
money in its vanilla package will be lost amidst the many millions
of innocent transactions.
We need to think outside the box. The wise bank must consider
how it could figure in the terrorist’s plans.
Notice, I say ‘could’. Money launderers are virtually
certain to use banks, for the simple reason that that is where
the money is. The same certainly does not apply for terrorists.
But that should not be allowed to be an excuse to lower your
guard against the possibility that they might. And that bank
might be yours.
The internal campaign against terrorist finance
needs to have at least three dimensions to be successful. The
first element involves the institution in undertaking a study
of its global structural exposure to terrorism. The second,
requires an examination of the nature and behaviour of the
potential terrorist customer. The third, demands a scrutiny
of existing ATF systems, in particular the bank’s effectiveness
in monitoring databases and other established data sources.
The first level I have just described will inform the others.
Terrorist operations vary from country to country across the
globe. No country and no financial institution should consider
itself free from some element of terrorism, if only because
terrorists will spot the vulnerability and exploit it. But
countries have different roles to play in the terrorist network.
The sponsors of a terrorist will be in one country, the conduits
for the movement of money in a second country, the quarter
masters of terrorist money in a third, and the operatives on
the ground in yet a fourth.
Banks must understand to what
form of financing local branches might be exposed. The risk
of a misunderstanding here is great. Once terrorist finance
enters a bank’s system, the entire
bank is affected. Worse still, a detection failure in a small
remote part of the bank can have repercussions for the entire
institution.
How do different geographies affect financing? The example
of Islamic terrorist financing is apt. In Saudi Arabia, terrorist
funds are known to have been packaged as charities. Those charitable
funds have moved through the Dubai banking system which has
correspondent banks in the United States. Global banks who
understand the passage and packaging of terrorist money will
control their risks. You will likewise be forewarned if your
ATM system is immune to access by a quartermaster using an
ATM card issued out of Eastern Europe.
Profiles of the financial behaviour of individual terrorists
also minimises banking risk. The prudent bank does not merely
keep a close watching brief on terrorist activity in each of
its markets, but it builds customer profiles to enhance its
systems for reporting suspicions. The transient lifestyle of
the terrorist suggests that he is unlikely to have a bank account,
related standing orders and the like. He is also likely to
receive erratic but relatively large payments rather than smaller
and regular ones.
But past behaviour need not be a guide to the future. Al
Qaida and its offshoots have proved skilful at staying one
step ahead of expectations. So the London bombings on 7 July
2005 were carried by locally-grown terrorists who had regular
jobs and conventional banking relationships. Their use of the
banking system provided no easy clues as to their intentions.
Banks should also know that their customers in geographies
where terrorist risk is greatest may be compromised. Companies
are used by terrorists to move money across borders and wealthy
company directors may make attractive clients until they are
shown to be connected with these conduit companies. There is
no substitute for scrutiny of the customer and of his financial
sources.
The third, and final piece of the bank’s armoury
against infiltration by terrorist finance is its use of external
and internal databases of known and suspected terrorists. These
are most effective when banks have developed the communication
tools to both access and convey information accurately and
quickly.
The war against money laundering goes on, but in
today’s
anxious environment, terrorist finance needs to be treated
as a battle all of its own. Neither society at large, nor the
financial system and its individual players can lower their
guard or contemplate defeat. |
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