Looking Back and Forward at Terrorist Financing and Money Laundering Highlights

By Dennis Lormel

As 2007 ends and we embark into 2008, a look back at the past year and forward to the coming year offers interesting observations about terrorist financing and money laundering. An issue that has been constant and was certainly prevalent in 2007 in the U.S. financial services sector was Bank Secrecy Act (BSA) and U.S. PATRIOT Act reporting requirements. One specific requirement, Currency Transaction Reports (CTRs), has been an area of contention. Current regulations require financial institutions to file CTRs for transactions over $10,000. The American Bankers Association (ABA) has strongly advocated raising the reporting threshold, as well as eliminating reporting requirements for seasoned customers. The ABA argues that CTR reporting requirements are archaic and should be updated. In addition, they are costly and can be resource intensive. Law enforcement contends information contained in CTRs and suspicious activity reports (SARs) is extremely important for investigative purposes and oppose changes to reporting requirements.

In January 2007, the House of Representatives passed the “Seasoned Customer Exemption Act” which would eliminate CTR reporting requirements for “seasoned customers.” The Senate has not yet acted on this bill. I believe that early in 2008, the Senate Banking Committee will hold hearings and assess the CTR and SAR reporting requirements. Based on my prior experience in dealing with the Senate Banking Committee, my sense is they will not be inclined to raise or eliminate reporting thresholds.

From a regulatory and law enforcement perspective, there were a number of significant actions taken over the past year. The Treasury Department designated numerous individuals and entities for providing terrorists with financial and other support. These actions invariably serve to achieve a deterrent value. There have been numerous successful law enforcement cases around the country at a grass roots level. Many such cases receive little media attention but are none the less significant. One example is Operation Cash Out. In September 2007, federal authorities in Baltimore announced the indictment of 39 individuals for operating illegal money remittance operations, money laundering and attempted bribery. This was a long term undercover investigation involving the IRS, FBI, ICE and international counterparts.

Unfortunately, these successes were overshadowed by select cases to include the Holy Land Foundation (HLF) mistrial. A mistrial was declared in October 2007. HLF was a setback to the government and drew much media attention and skepticism about bringing such cases to trial. Unless plea agreements are reached, I expect the Justice Department to retry the HLF in the later part of 2008. Based on post trial jury interviews, assessment of evidence presented during the first trial, and actions taken by the Palestinians to declare and shut down charitable committees that HLF dealt with as being Hamas fronts, I anticipate that the government will be successful in obtaining convictions at retrial.
Another investigative dimension has been a constant since 9/11 and I’m confident it achieved significant disruptive results again in 2007 and will continue to do so in 2008. Since 9/11, the FBI and CIA established proactive financial investigative/intelligence initiatives. These coordinated initiatives highlight the outstanding relationship between the FBI and CIA in terrorist financing. Due to the classified or ongoing law enforcement nature of these initiatives, they usually do not receive public attention. One such initiative was leaked by the New York Times in June 2006. It involved the use of SWIFT data obtained via subpoena. It should be noted that the FBI and CIA financial initiatives operate within the framework of the law.

Money laundering trends that emerged and/or remained prevalent in 2007 included use of shell companies, bulk cash shipment, cash couriers, and use of alternate remittance systems such as hawala and illegal money remittance businesses. The FBI is particularly concerned about the use of cash couriers in terrorism cases. Microstructuring has emerged as a problem that will require considerable attention in 2008. It is a variation of traditional structuring wherein launderers break transactions down into amounts ranging from a few hundred dollars to less than $2,000.

Newer services like prepaid cards and mobile banking are rife for exploitation by money launderers and fraudsters. Understanding and assessing risk as well as developing and implementing mechanisms to minimize exploitation will be important. It is incumbent that regulators and especially law enforcement learn about and understand the functionality of newer banking products.

There is a growing trend in the banking industry toward implementing AML transaction monitoring systems. To that end, there is a large number of transaction monitoring software products available. There is a broad consensus that banks should have automated transaction monitoring systems. In my view, intelligence information is critical to identifying current and emerging money laundering trends. This is important for developing typologies to screen for money laundering.

Intelligence sharing by law enforcement with the banking industry has long been an issue with industry experts. This is particularly true in dealing with terrorist financing. Law enforcement, intelligence agencies and FinCEN have been wrestling with the challenge of providing intelligence information to financial institutions to better position them to identify terrorist financing. There are numerous impediments and considerations that must be addressed before an information flow can be established. I encourage my former law enforcement colleagues to make intelligence sharing a more important priority in the coming year.

The greater the degree of information sharing, cooperation and coordination between government and the financial sector, the greater the potential to disrupt the flow of funding to terrorists.

January 2, 2008 05:19 PM

http://counterterrorismblog.org/2008/01/looking_back_and_forward_at_te.php