TERRORISM AND MONEY LAUNDERING

By
NOOR ALAM KHAN
Advocate Supreme Court of Pakistan &
Chairman, Voice of Prisoners
Member KPK Bar Council, Peshawar

HISTORICAL INTRODUCTION

Money laundering refers to the process of concealing the source of illegally obtained money. The methods by which money may be laundered are varied and can range in sophistication. Many regulatory and governmental authorities quote estimates each year for the amount of money laundered, either worldwide or within their national economy. In 1996 the International Monetary Fund estimated that two to five percent of the worldwide global economy involved laundered money. However, the Financial Action Task Force FATF, an intergovernmental body set up to combat money laundering, admitted that "overall it is absolutely impossible to produce a reliable estimate of the amount of money laundered and therefore the FATF does not publish any figures in this regard."[1] Academic commentators have likewise been unable to estimate the volume of money with any degree of assurance.

I am pleased to be here today to discuss federal law enforcement agencies' efforts to cooperatively investigate money laundering and terrorist financing. Money laundering —the process of disguising or concealing illicit funds to make them appear legitimate — is a serious crime, with an estimated $500 billion to $1 trillion laundered worldwide annually, according to the United Nations Office of Drug Control and Prevention. Money laundering provides the fuel for terrorists, drug dealers, arms traffickers, and other criminals to operate and expand their activities, which can have devastating social and economic consequences. Terrorist financing is generally characterized by different motives than money laundering, and the funds often originate from legitimate sources. However, investigations of money laundering and investigations of terrorist financing often involve similar approaches or techniques because the methods used for hiding the movement of funds also involve similarities.

Although this is not a history of terrorism and our analysis does not emphasize terrorist groups of antiquity, some appreciation of their violent past is essential. The history of terrorism constitutes a major undertaking in its own right. That is not our intention here. However, it is important that we should not ignore certain historical antecedents of terrorism and violence in order to appreciate the relationship between ancient and contemporary terrorist movements. War and revolution in general and the terrorist strategy in particular have a rich heritage. The terms terrorism and terrorist have their roots in the French Revolution. Since that time terrorism has been widely used to describe almost every form of violent behavior. Even though the term is relatively recent, the terrorist strategy is not. Criminal justice practitioners and students of the terrorist method sometimes ignore this important history they also feel that terrorism is a contemporary phenomenon and thus new and unprecedented.

Money laundering is a serious crime that affects the economy as a whole, impeding the social, economic, political, and cultural development of societies worldwide. Over the last decades, globalization has been accompanied by the growth of cross-border and national underground economies fueled by illegal businesses. Such criminal activities as drug trafficking, human trafficking, migrant smuggling, traffic in body organs and firearms, as well as prostitution and racketeering, have generated immense profits that boost demand for money laundering. Fighting money laundering involves combating the recycling of illegally gained proceeds and providing additional tools to detect and go after the underlying crime. Terrorism and its financing are also affecting both the national and the international economies. As do money launderers, terrorists raise their funds through various profitable activities that mainly stem from criminal acts, such as kidnapping, extortion, large-scale smuggling, narcotics trafficking, robbery, and theft. Terrorists need to use the financial infrastructure to mobilize and channel their funds.

ENFORCEMENT

Anti-money laundering (AML) is a term mainly used in the financial and legal industries to describe the legal controls that require financial institutions and other regulated entities to prevent, detect and report money laundering activities. Anti-money laundering guidelines came into prominence globally as a result of the formation of the Financial Action Task Force (FATF) and the promulgation of an international framework of anti-money laundering standards. These standards began to have more relevance in 2000 and 2001 after FATF began a process to publicly identify countries that were deficient in their anti-money laundering laws and international cooperation, a process colloquially known as "name and shame

For many years, representatives of national, foreign, and international law enforcement agencies have been concerned about the role played by Informal Value Transfer Systems (IVTS) in the facilitation of serious crimes, including money laundering. Terrorism is now at the top of the list.

Understanding Informal Value Transfer Systems (IVTS) IVTS is crucial because they originated and are widely practiced in countries from where terrorism suspects came or operated - i.e., in the Arab/Muslim world and the Middle East, as well as other parts of Asia. IVTS include various ethnic traditions or practices, such as hawala, hundi, padala, fei chien, Phoe kuan, and the black market peso exchange. Most of them have also been referred to as 'underground banking systems' or 'alternative remittance systems'.

From the very start in the fight against money laundering at the international level, the United Nations has taken an active role to promote the harmonization of countermeasures and the strengthening of international cooperation. The United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, adopted in December 1988 in Vienna, was the first international instrument to address the issue of proceeds of crime, and to require States to establish money laundering as a criminal offence.

CAPITALISM AND MONEY LAUNDERING

Question of money laundering for the purpose of sins like terrorism is based under the hidden covers of our economic system and the technicalities which can be hijacked by the terrorist who are having enough education to do it for their purposes. Taken over large areas of the globe and threatens many others parallel economies based on drug trafficking, arms smuggling, money laundering and corruption of all stripes are now valued in the trillions of dollars and attract new recruits hourly. Huge areas of the world already lie outside the jurisdiction of any state. Legitimate authorities do not necessarily know, much less control, the location of private airports, cocaine-producing factories or cartels headquarters. These cartels have acquired not merely financial but also strategic power. As all these anti social elements extend their reach, money and politics follow them. Legitimate businesses are sucked into their vortex. These peoples can afford to buy the requisite elements of national governments as convenient.

Before the terrorist attacks of September 11, 2001, the Financial Crimes Enforcement Network (FinCEN) was interested in conducting a study into the risk posed to this country by informal methods of money transfers. I was contacted by the Office of Strategic Analysis, and we had preliminary discussions about the project. Because the terrorists were from countries in which informal payment methods are prevalent the project took on a new urgency, particularly as the US Congress showed a strong, interest in hawala. So, the current project was initiated in October 2001 with the objective of establishing the facts on these methods, the use (actual or potential) by legitimate clients as well as terrorists and other criminal actors, the modus operandi observed and anticipated in the near future, and concluding with concrete recommendations for law enforcement agencies and policy/law makers.

Although hawala, as a method of informal value transfer, was the initial point of interest after 9/11, a wide range of methods and networks operate in similar ways and perform analogous services or functions. That is, funds and value transfers from place to place on behalf of legal actors, terrorists or other criminal groups take place informally or without leaving many obvious traces (or at all) I call these processes Informal Value.

The most common IVTS as identified so far are follows:

• Hawala

• Hundi

• Black market peso exchange networks

• Fei chien, door-to-door, and other Asian varieties

• Invoice manipulation schemes

• In-kind fund transfers (India and elsewhere)

• Trade diversion schemes

• Courier services and physical transfer methods

• Corresponding banking accounts

• Charities

• Gift and money transfer services overseas via special vouchers and internet web sites (Africa and Asia)

• Internet based payments/ transfers

• Stored value/ such as pre-paid telephone cards

• Debit and credit cards used by multiple individuals

• Bank guarantee

• Brokerage accounts

It is important to stress the finding that there is extensive cross-ethnic collaboration legitimate and criminal value transfers (including funds destined for the support of terrorist groups). The previously held view that these are family-based and exclusively ethnic networks is unsupported by our data. In addition, the success and efficiency of traditional IVTS like hawala have inspired imitators outside Asia

FUND RAISING ORGANIZATIONS AND POSSIBLE LINKS TO TERRORIST ACTIVITIES

Law enforcement investigations identified possible links between the owners of a U.S. based relief organization and a known terrorist organization. A central account was used by agents of the company to deposit cash. Several complaints were filed by financial institutions on the suspect nature of the transactions. International wire transactions were then initiated from the account in which funds were sent to Russia, and two former Soviet Republic States. Wire transfers were also credited to the U.S. company account from unknown transactors through a European Bank.

The U.S. company also wire-transferred funds to another U.S. based business engaged in similar business activities (charity). All of these transactions are suspect based on the volume of activity affecting the company's account vis-a vis the types of services the company was providing.

Wire transfers from the company were credited to a similar type of U.S. based company. That company also is suspected of having an association with a known terrorist organization. Concluding Observations

RECOMMENDATION

From a strategic perspective, the annual NMLS has had mixed results in guiding the efforts of law enforcement in the fight against money laundering and, more recently, terrorist financing. Although expected to have a flagship role in the U.S. government's efforts to disrupt and dismantle large-scale money laundering operations, HIFCA task forces generally are not yet structured and operating as intended. Treasury and Justice are in the process of reviewing the HIFCA task forces, which ultimately could result'in program improvements.

Also, most of the NMLS initiatives designed to enhance interagency coordination of money laundering investigations have not yet achieved their expectations. While the annual NMLS has fallen short of expectations, federal law enforcement agencies recognize that they must continue to develop and use interagency coordination mechanisms to leverage existing resources to investigate money laundering and terrorist financing.

Financial institutions should pay special attention to any money laundering threats that may arise from new or developing technologies that might favour anonymity, and take measures, if needed, to prevent their use in money laundering schemes. In particular, financial institutions should have policies and procedures in place to address any specific risks associated with non-face to face business relationships or transactions.

Countries should apply the crime of money laundering to all serious offences, with a view to including the widest range of predicate offences. Predicate offences may be described by reference to all offences, or to a threshold linked either to a category of serious offences or to the penalty of imprisonment applicable to the predicate offence (threshold approach), or to a list of predicate offences, or a combination of these approaches.

Countries should ensure that effective, proportionate and dissuasive sanctions, whether criminal, civil or administrative, are available to deal with natural or legal persons covered by these recommendations that fail to comply with anti-money laundering or terrorist financing requirements.

Countries should ensure that their competent authorities can review the effectiveness of their systems to combat money laundering and terrorist financing systems by maintaining comprehensive statistics on matters relevant to the effectiveness and efficiency of such systems. This should include statistics on the STR received and disseminated; on money laundering and terrorist financing investigations, prosecutions and convictions; on property frozen, seized and confiscated; and on mutual legal assistance or other international requests for co-operation.