Two Lebanese currency traders deny U.S. charges of criminal links

Two firms designated by the U.S. Treasury for their alleged roles in an international drug trafficking and money laundering ring denied Thursday involvement in illegal activities.

The U.S. government took the decision Wednesday to label Ayman Joumaa, as well as nine people and 19 companies connected with him as Specially Designated Narcotics Traffickers in a racket which reportedly netted as much as $200 million a month.

Two Lebanese currency traders, Hassan Ayash Exchange and Elissa Exchange, which were both named in the Treasury’s designation, denied knowledge of Joumaa’s activities.

“We are terribly shocked by this news. I don’t know how our company’s name got involved in this work and the reports,” Iman Kharoubi, of Elissa Exchange, told The Daily Star.

“We work in Lebanon [and The Democratic Republic of] Congo and Benin in Africa. But we do not know who Ayman Joumaa is; we don’t have anything to do with him.”

Hassan Ayash, the owner of the exchange firm, denied any wrongdoing, but did admit to knowing Joumaa, who the U.S. designated under the Kingpin Act and will now struggle to access international financial transactions.

“For us it was a surprise today to hear about this story,” Ayash told The Daily Star. “We have no knowledge of where Ayman Joumaa is currently and we have no contact with him. But we know him in person.”

Beirut’s Caesar’s Park Hotel was also designated by the Treasury after it was alleged Joumaa, the manager and CEO, “uses [the hotel] as a location to broker drug trafficking and money laundering activities.” The hotel declined to comment on the accusation.

Both exchange companies have contacted Lebanon’s Central Bank for advice following financial sanctions, but Ayash was not unduly worried about the potential negative effect U.S. punitive measures could have on business.

“Actually there would be no consequences whatsoever on our work, since our work is transparent and we work with several banks in the U.S.,” he said.

Kharoubi was less optimistic. “Our transactions are clear and transparent, but our work would be terribly affected,” he said. “Our transactions go through several U.S. banks and car companies all over the United States. Under U.S. government supervision, our products and cargos are monitored within the United States.”

Washington has said it would reconsider its financial support for Lebanese institutions if a cabinet blessed by Hezbollah is formed by Prime Minister-designate Najib Mikati.

Both firms said the financial measures taken against them were unlikely to be linked to cabinet uncertainty.

“We are not affiliated with any party in the country. I do not think that this is related to regional politics,” Kharoubi said.

“It is too early yet, since the news just came in, to actually know if there are any political and economic indications in the American reports,” Ayash added. “We cannot say whether this action is related to the recent developments in Lebanon.”

The United States has already blacklisted several Lebanese companies for their suspected links to Hezbollah. – Additional reporting by Van Megeurditchian

Source: The Daily Star

US couple pleads guilty to funding Hezbollah

By JPOST.COM STAFF

Report: Married couple with dual Lebanese, US citizenship admits they planned to provide terrorist group with up to $1 million.

Hor and Amera Akl, a married couple from the United States, pleaded guilty pleaded guilty on Monday to charges of planning to courier money to Hezbollah, the Associated Press reported. The couple had been planning to send up to $1 million to the US-classified "terrorist organization" throughout the year, federal prosecutors said.

The plea deal was was meant to save Hor and Amera Akl, parents of three children and dual American and Lebanese citizens, from life sentences.

An FBI agent reportedly gave the couple their first $200,000 shipment that was to be hidden in an SUV prior to their arrests last June, the Associated Press reported the US government as saying. Hor Akl had traveled to Lebanon in 2010 to arrange the transport, and when he returned claimed he had met with Hezbollah officials.

The Akls, who were expected to earn $200,000 in fees to ship the funds, pleaded guilty to conspiracy to provide material to a foreign "terrorist organization," and Hor pleaded guilty to money laundering, bankruptcy fraud and perjury charges as well.

In return, prosecutors dropped an arson charge against both individuals that would have landed them an obligatory 10-year sentence and a money laundering charge against Amera Akl. The couple could have faced 30-year sentences if they had been convicted of all charges.

Instead, Hor Akl faces seven years in prison while Amera faces up to four.

Amera Akl is set to be sentenced June 20, while her husband still lacks a sentencing date, the Associated Press said. They remained free on bail after their pleas.

Source: The Jerusalem post

Lebanese bank denies U.S. charge of money laundering

A Lebanese bank has denied accusations by the U.S. Treasury Department that it is involved in laundering hundreds of millions of dollars on behalf of a drug kingpin -- and rejected claims it has links with Hezbollah, the Lebanon-based militia.

On Thursday the Treasury described the Lebanese Canadian Bank in Beirut as a "financial institution of primary money laundering concern." The Treasury said it had reason to believe that managers at the bank were complicit in money laundering by Ayman Joumaa, an alleged trafficker accused by U.S. authorities of shipping drugs from South America to Europe and the Middle East through west Africa.

The Treasury also said its action in designating the Lebanese Canadian Bank (LCB) exposed links between the bank and Hezbollah -- which is listed as a terrorist organization by the United States. Designation means that U.S. persons are prohibited from conducting financial or commercial transactions with individuals listed, whose assets under U.S. jurisdiction are frozen.

U.S. Under Secretary for Terrorism and Financial Intelligence Stuart Levey said: "Any financial institution that collaborates in illicit conduct on this scale risks losing its access to the United States."

The bank's chairman, Georges Zard Abou Jaoude, told CNN Friday that the bank had no relationship whatsoever with Hezbollah nor to the best of its knowledge with anyone designated by the U.S. Treasury Department. Jaoude said the bank had identified an account in Joumaa's name but it had not been used in four years. It had notified Lebanese regulators about the account, and the bank's books had been regularly inspected by the Special Investigation Commission, a Lebanese task force set up to counter money laundering.

The Treasury said Joumaa's network "launders hundreds of millions of dollars monthly through accounts held at LCB, as well as through trade-based money laundering involving consumer goods throughout the world." In its statement issued Thursday, the Treasury estimated that as much as $200 million was being laundered on a monthly basis. "At least one of the individuals involved in this global drug trafficking and money laundering network has worked directly with LCB managers to conduct his transactions," the Treasury said.

The U.S. Drug Enforcement Administration, which was also involved in the investigation, said: "The Lebanese Canadian Bank for years has participated in a sophisticated money laundering scheme involving used cars purchased in the United States and consumer goods overseas."

The Treasury said the bank's links to Hezbollah included a subsidiary in Gambia called Prime Bank, formed in 2009, which it said was "partially owned by a Lebanese individual known to be a supporter of Hezbollah. "

Jaoude told CNN the bank rigorously adhered to all blacklists published by financial authorities around the world. He said the bank had not been contacted in advance by the U.S. Treasury's Office of Foreign Assets Control before Thursday's announcement and he was urgently trying to contact U.S. authorities. "All our books are open to the American Treasury," Jaoude said. "We have to clear our name," he said.

In its most recent annual report, the bank said "it is fighting money laundering by complying with international and [Lebanese] Central Bank circulars."

The Lebanese Canadian bank has 35 branches in Lebanon, as well as its subsidiary in Gambia and an office in Canada. The bank has grown quickly in recent years, from assets of $2.83 billion in 2005 to $5.18 billion in 2009.

Ayman Joumaa was designated in January -- along with nine individuals and 19 entities connected to his drug trafficking and money laundering. A Treasury statement said he "coordinated the transportation, distribution, and sale of multi-ton shipments of cocaine from South America and has laundered the proceeds from the sale of cocaine in Europe and the Middle East, according to investigations led by the Drug Enforcement Administration." Joumaa's whereabouts are unknown. He is believed to hold Lebanese and Colombian passports.

One of the entities designated along with Joumaa was a company that runs a used car business in Benin and Congo out of southern Lebanon. Its manager, Iman Kharoubi, told Lebanon's Daily Star last month: "We work in Lebanon and Congo and Benin in Africa. But we do not know who Ayman Joumaa is; we don't have anything to do with him." CNN's attempts to reach Kharoubi were unsuccessful.

For several years, U.S. authorities have alleged that Hezbollah is profiting from drug trafficking from South America to Europe via west Africa. In June 2008, the U.S. Treasury Department designated two Venezuelans of Lebanese descent as Hezbollah financiers and supporters.

Source: CNN

The New UN Sanctions Resolution Against Iran

The UN Security Council approved a resolution on June 9th imposing a fourth round of sanctions on Iran in response to its continued nuclear enrichment program in violation of prior Security Council resolutions. The vote was 12 in favor, 2 against (Brazil and Turkey) and 1 abstention (Lebanon).

The new resolution imposes new financial restrictions on Iran, expands an existing arms embargo, and authorizes greater stop and search of Iranian cargo ships. Targeted sanctions on specific individuals and entities were expanded. The resolution also includes measures directed against Iran’s Revolutionary Guard.

While the United States, Great Britain and France were its strongest sponsors, China and Russia also expressed their verbal support along with their votes, although the Russian ambassador added a major caveat in his response to a reporter’s question about Russia’s prospective sale of a sophisticated anti-aircraft system to Iran.

Lebanon’s decision to abstain was a pleasant surprise, considering the influence of Iran-backed Hezbollah in the Lebanese government. However, Brazil and Turkey as expected opposed the new resolution on the grounds that it could undermine the proposed nuclear fuel swap agreed by the two countries with Iran last month. They seemed to forget that the European Union has been trying to negotiate with Iran since 2005 and the Obama administration waited 18 months while trying to engage Iran before seeking passage of this resolution. Only when new sanctions became a real possibility did Iran come around to the fuel swap concept that it had first agreed upon and then promptly reneged on last fall.

Rice’s Positive Spin

U.S. Ambassador Susan Rice told reporters after the vote that the “resolution is strong, it’s tough and it’s comprehensive. And it is something that Iran fought very hard to prevent passage today. The effort, the time, the money, and the poise that they employed, to try to prevent this resolution’s passage only underscores their understanding, that this is a major blow.”

Despite the ineffectiveness of the three prior resolutions, Ambassador Rice expressed confidence that the cumulative effect on Iran of all the resolutions is “harmful and hurtful.”

Iran’s Rebuke

Iran remains unbowed. Its representative told the Security Council after the vote that it had no intention of changing its present course. He accused the United States and Great Britain in particular of continuing a long pattern of interference in Iran’s affairs and displaying a double standard vis a vis Israel. Ambassador Rice told reporters that these comments were “reprehensible, offensive, and inaccurate.”

Stronger Resolution on Paper

On paper at least, the new resolution does appear to represent a significant move forward from the prior three. More specifically, the resolution prohibits Iran from investing in sensitive nuclear activities abroad, like uranium enrichment and reprocessing activities, as well as activities involving ballistic missiles capable of delivering nuclear weapons. The ban also applies to investment in uranium mining.

States are prohibited from selling or in any way transferring to Iran various categories of heavy weapons (battle tanks, armored combat vehicles, large caliber artillery systems, combat aircraft, attack helicopters, warships, and certain missiles or missile systems). States are similarly prohibited from providing technical or financial assistance for such systems, or spare parts.

The resolution also sets up a new cargo inspection framework. States are expected to inspect any vessel on their territory suspected of carrying prohibited cargo, including banned conventional arms or sensitive nuclear or missile items. States are also expected to cooperate in such inspections on the high seas.

States are called upon to prevent any financial service and freeze any asset that could contribute to Iran’s proliferation.

Resolution targets the Islamic Revolutionary Guard Corps

Most significantly, the resolution targets the Islamic Revolutionary Guard Corps (IRGC) for its role in proliferation and requires states to mandate that businesses exercise vigilance over all transactions involving the IRGC. Fifteen IRGC-related companies linked to proliferation will have their assets frozen. The IRGC is the major power center in Iran’s economic and military spheres as well as one of the government’s primary instruments for suppressing political dissent. Impairing the IRGC’s freedom of operations will be a significant accomplishment, if successful.

The Proof Will be in Enforcement

UN Security Council sanctions resolutions against Iraq, North Korea and Iran have had a bad track record in actual practice. The resolutions have been easy for the sanctioned countries to evade, through the use of multiple front entities, money laundering and trading partners unwilling to give up short term advantage for longer term peace and security.

Also, enforcement of the cargo inspection at sea will be a challenge if Iran, as expected, refuses to cooperate. When the French UN ambassador, for example, was asked what measures France would be willing to take in such a scenario, he refused to answer what he called a “hypothetical question.”

Most ominously, the Russian UN ambassador told reporters that Russia did not consider the sale of its sophisticated S-300 anti-aircraft system to Iran to be within the resolution’s scope. The S-300 missile defense system would no doubt be used by Iran to shield its nuclear sites against a potential air strike, should military force become necessary to stop Iran from producing nuclear bombs. The Russian ambassador is technically correct because the resolution’s ban on the transfer to Iran of certain missile systems is written in such a way that it creates a big loophole for Russia to walk through in delivering to Iran its ground-to-air missiles, including its S-300 anti-aircraft missiles and anti-missile interceptors.

The Obama administration will spin the latest sanctions resolution against Iran as a major diplomatic triumph and a significant obstacle in the way of Iran’s progress towards achieving a nuclear arms capability. I hope they are right. However, until the S-300 loophole is closed; until the U.S. and its allies figure out a way to effectively stop evasions of the sanctions; and until enough countries show that they are willing to enforce the cargo inspections, the Obama administration might want to wait before it celebrates.

Source: Canada Free Press

Brennan: Al-Qaeda Affiliates Turning To Crime For Funding

U.S. President Barack Obama's chief counterterrorism adviser says that with Al-Qaeda's core under financial strain, its affiliates are increasingly turning to crime to fund their operations. 

Deputy National Security Adviser John Brennan made the remarks in Washington at a Treasury Department symposium titled "Ten Years Later: Progress and Challenges in Combating the Financing of Terrorism Since 9/11."

"Reacting to Al-Qaeda's core financial difficulties, its affiliates in East Africa and on the Arabian Peninsula have come to rely less on support from the Al-Qaeda network as they plan and mount terrorist attacks," Brennan said. 

"While the Al-Qaeda core continues to provide strategic guidance, some affiliates now instead have turned to crime to generate funding -- particularly kidnapping for ransom, control of territory, extortion, and at times, drug trafficking." 

Brennan said that the trend is due to pressure exerted on the terror network by sanctions and other measures that have cut off Al-Qaeda from its financiers or disrupted the funneling of money within the organization. 

He also said the Arabian Peninsula "remains the most important source of financial support for Al-Qaeda and its affiliates and adherents worldwide," but praised Saudi Arabia and the United Arab Emirates for making progress. 

Brennan also singled out Iran for its support of Hamas and Hizballah. 

Source: RFERL

Paraguay called financial hub for terror and crime

Ralph Nieves, a wiry ex-NYPD narcotics detective, lived through the aftermath of Sept. 11, 2001, in Manhattan. That is why what he discovered about a particular part of Paraguay during a recent assignment there has so disturbed him.

Working under a U.S. government contract to carry out polygraph examinations of public officials in the country, Nieves said he discovered evidence of pervasive corruption among some police and military units.

It is a situation other law enforcement officials believe has contributed to parts of Paraguay being a terrorist haven where al-Qaida, Hezbollah and allied groups have been for years.

As a result, Paraguay's borders with Brazil and Argentina -- an area called the "tri-border" -- are being increasingly viewed by investigators, as well as American diplomats, as the vulnerable underbelly of the U.S. Ciudad del Este, Paraguay's second largest city,which is suspected of being a financial hub for terror and organized crime groups.

Some American investigators also believe the area's porous borders make it an ideal springboard for terrorists to make their way to the U.S. circuitously through Mexico and the Caribbean by using a variety of smuggling venues.

"Every major criminal organization in the world has a criminal representation in Ciudad del Este," Nieves, 63, said in a recent interview.

The lawlessness of the region makes it a threat for future terrorist financing and action in New York, Nieves said. He isn't alone in his concerns.

"It is being watched," Rep. Peter King, the ranking Republican on the House's Homeland Security Committee, told Newsday recently when asked about the tri-border zone.

Hezbollah, an umbrella organization for Shia Muslims, which started in Lebanon, is believed to have laundered $10 million annually through the area, King said.

Martin Ficke, former head of Immigration and Customs Enforcement in New York and now director of operations for the Jericho-based investigative firm SES Resources Ltd., said the tri-border is a continuing concern for money laundering. Ficke, who worked with the El Dorado money laundering task force, said agents were looking to see how readily terrorists could rely on narcotics networks in Paraguay to move cash to support terror operations. He wouldn't comment further.

Officially, the U.S. Department of State says southern Paraguay has yet to sustain an "operational" presence for al-Qaida, Hezbollah and Hamas. King also doesn't believe al-Qaida is present in the area. But there are documented cases where members and sympathizers of Hamas, a militant Palestinian organization, and Hezbollah have engaged in money laundering, extortion, bombings and other crimes inside Ciudad del Este and surrounding areas. Back in the 1990s, suspects in the bombings of South America's Jewish communities were traced to the area.

Some U.S. officials also believe an al-Qaida ally, a shadowy terrorist group known as Lashkar-e-Taiba, which became active in Kashmir in the 1990s, is now operating in the region. Earlier this year, a Manhattan federal judge sentenced a Baltimore man to 15 years in prison for traveling to Pakistan for terrorism training at one of the group's camps.

A report prepared by the U.S. Embassy in Paraguay in April said the country doesn't have effective ways to deal with money laundering and terrorist financing but does try to cooperate in counterterrorism efforts. Judicial and police corruption were concerns, said the report.

In May, MSNBC ran a brief interview by correspondent Pablo Gato with a young Arab Muslim sympathizer of Hezbollah in Ciudad del Este who threatened to attack the U.S. if Iran was targeted.

"In two minutes, Bush is dead," the man told MSNBC of the threatened consequences of a U.S attack.

While those remarks seem like braggadocio, some U.S. officials have been wary of Hezbollah members infiltrating the United States through Mexico to carry out acts of terror. Washington has been pouring millions into Paraguay to try to strengthen its legal institutions, which is why Nieves, who is a private investigator in the Bronx, was working there.

Nieves took polygraph exams of nearly 80 cops, customs officials and military officers. They were applicants for positions in a special customs task force aimed at improving border controls in Paraguay that was to be funded by American aid dollars.

According to Nieves, one of a few U.S.-based Spanish-language polygraphers active in the business, the officials easily opened up to him. After Nieves assured them that admissions of participating in routine graft -- known locally as "la coima" -- wouldn't get them in trouble, the applicants said they believed criminals were tipped off to investigations by law enforcement officials. In some cases, local prosecutors warned smugglers of raids so they could dispose of contraband, Nieves said.

One customs officer said that some higher-ranked customs officials knew all of the organized crime leaders and provided them with information. Some national police also took part in executions on the border with Brazil near the town of Pedro Juan Caballero, said the official, adding that the killings involved disputes over smuggled goods.

The applicants painted a picture of a wild-west atmosphere where legitimate law enforcement was intimidated by criminals and corrupt higher officials.

"They mentioned terrorists, every organized crime group, al-Qaida, the Chinese," recalled Nieves of his debriefings.

One American law enforcement consultant who didn't want to be identified because he does a lot of business in Paraguay said the country's customs service is prone to corruption because of the low wages officials are paid. But even higher pay won't bring speedy reform, he said.

"They don't look at it as corruption. It is part of the culture," he said. "Everybody takes a piece of the government income."

"Most of those people who were coming forward were decent people. Unfortunately, the circumstances are overwhelming for them," Nieves said about the corruption.

Nieves thinks the United States could benefit by developing its own network of paid informants within Paraguay's customs and border police as an early warning system against terrorism.

"Everyone I met were people we could flip," he said.

http://www.newsday.com/news/nationworld/ny-nypara0101,0,7656260.story

Toronto non-profit raised millions for Tamil Tigers

Stewart Bell, National Post

A Toronto non-profit group wired more than $3-million to overseas bank accounts, some of them linked to the Tamil Tigers, before it was shut down by the government in June for alleged terrorist financing, says an RCMP report released yesterday.

The report, marked "Secret" but unsealed by order of a Federal Court judge, provides the first detailed look at the banking activities of the World Tamil Movement (WTM), a Toronto-based group accused of bankrolling Sri Lanka's Tamil Tigers guerrillas.

Most of the money, $1.9-million, went to an account at the Bumiputra Commerce Bank in Kuala Lumpur, Malaysia, that the RCMP report says "is utilized as a vehicle to forward money to the LTTE [Liberation Tigers of Tamil Eelam] from Canada."

The 83-page financial report is the fruit of two years of analysis of banking records seized by Canadian anti-terrorism police who are investigating a financial network run by supporters of the Tamil Tigers that allegedly raised money in Canada to buy arms for the guerrillas.

"The bank records seized ... demonstrate that the World Tamil Movement has developed an elaborate machine like entity that moves throughout the Greater Toronto Area collecting funds with extreme proficiency," the police report says.

Stockwell Day, the Public Safety Minister, announced on June 16 that his government had added the WTM to Ottawa's official list of terrorist groups, alongside the likes of Al-Qaeda, Hamas and Hezbollah. The WTM is the first Canadian community group to be listed.

The WTM has denied any involvement in terrorist fundraising and vowed to challenge the government's decision, and at a large outdoor rally in Toronto on July 5, Tamils waved Tamil Tigers flags and endorsed a statement condemning Ottawa's decision to ban the WTM.

The Minister has accused the WTM of transferring money to LTTE bank accounts in Sri Lanka, but the RCMP's Feb. 1, 2008, financial report paints a more detailed picture of a complex network made up of 20 Canadian bank accounts.

Five banks held the accounts: Toronto Dominion, Bank of Nova Scotia, Royal Bank, CIBC and the National Bank of Canada. The Canadian account holders wired money regularly to accounts in Malaysia, Singapore, the United Kingdom and Tamil Tigers-controlled areas of Sri Lanka.

RCMP Corporal Deanna Hill, the author of the police report, wrote that the WTM's financial set-up was "congruent with the money laundering techniques often employed by organized crime groups.

"I also believe that the number of accounts alone demonstrate that the World Tamil Movement has utilized the Canadian banking system to raise funds in a manner that is best suited to financing the terrorist activities of the LTTE."

The Tamil Tigers have been fighting for 25 years for an independent homeland for Sri Lanka's ethnic Tamil minority, which has faced discrimination under the island's Sinhalese majority.

In addition to fighting a conventional guerrilla war, however, the Tigers also employ terrorist tactics, such as suicide bombings and political assassinations, which has landed them on international terrorist lists, Canada's included.

The RCMP began investigating the Tamil Tigers' Canadian fundraising network in 2002, focusing on the WTM's large head office in Toronto and its smaller branch offices in Montreal and Vancouver. Police raided the Toronto and Montreal offices in 2006.

Police seized letters from the Tamil Tigers leadership thanking Canada for its donations, explaining how the money had been used to purchase weapons, and asking for more. But much of the police evidence appears to have come from a study of bank accounts held by the WTM and its officers.

The Project Osaluki financial report claims the WTM's most lucrative fundraising method was a pre-authorized payment program, in which the group persuaded hundreds of its supporters to sign forms allowing money to be withdrawn from their bank accounts each month.

The WTM took in up to $763,000 a year using the payment scheme. On a single day in 2005, the WTM withdrew $63,528 from 1,582 bank accounts. "It is obvious from the amounts collected with this method that the pre-authorized payment scheme is effective, timely and spares valued resources," says the RCMP report.

Most of the forms had been signed in Canada but police also interviewed witnesses who said they had signed them at Tamil Tigers checkpoints in Sri Lanka. "Upon their return to Canada, these persons were visited by representatives of the World Tamil Movement to exact the collection of the monthly stipend," Cpl. Hill wrote.

In addition, the WTM made money through bake sales, car washes, newspaper sales, merchandise sales and festivals, the report says. "To date, the total amount of Canadian dollars that have been forwarded to accounts internationally from accounts controlled by the World Tamil Movement in Canada is $3,101,803.33."

Source: National Post

EU to tighten screw on Tehran bank

By Daniel Dombey in Washington, Financial Times, 15 May 2008

Bank Melli, Iran's biggest commercial bank, is set to be banned from operating in the European Union under proposals in the final stages of discussion in Brussels.

At present, the bank operates branches in the City of London, France and Germany, so blunting American calls for other jurisdictions to break off ties with Iranian institutions, particularly in the Gulf.

"It is important for the EU to come to agreement on stepping up financial pressure on Iranian banks as a means of demonstrating to the Iranian regime how seriously we take their nuclear proliferation," said a European diplomat.

But the time and effort it has taken to get agreement on the move, which comes after a year-long push by the US and its allies, highlight the problems Washington may face in its quest to win international support for tougher sanctions and so convince Tehran to rein in its nuclear programme.

"Many people around the world are looking to Europe on this issue," Stuart Levey, US treasury undersecretary, told the FT. "What Europe does is quite important."

The US effort dates back to last summer, when negotiations began on a UN Security Council resolution that Washington and its allies wanted to prevent Melli and another Iranian bank, Bank Saderat, from doing business internationally.

In October, the Bush administration intensified its effort with unilateral sanctions against a number of Iranian institutions – including both Melli and Saderat – measures that Washington pushed other jurisdictions to emulate.

"We call on responsible banks and companies around the world to terminate any business with Bank Melli, Bank Mellat [another Iranian bank], Bank Saderat, and all companies and entities of [Iran's] Islamic Revolutionary Guards Corps," Hank Paulson, treasury secretary, said on that occasion.

However, Washington found itself caught in a "catch-22" when it pushed the UK, its closest ally, to close Melli and Saderat's operations in London. Britain said it could act only as part of a general EU decision and, within the EU, countries such as Germany, Austria, Spain and Italy called for a UN decision before they would proceed.

Seeking to break the impasse, the US, Britain and France finally won agreement on a UN Security Council resolution in March that merely called on member states to exercise "vigilance" over Iranian banks, especially Bank Melli and Bank Saderat, due to what it said was their link to proliferation and Iran's nuclear programme.

"It's pretty clear that the US had hoped that this would happen more quickly and perhaps be a little bit more robust," said Mr Levey.

Diplomats said the UN resolution was designed to "open the door" to an outright EU ban on the banks' subsidiaries in Europe. However, the EU has been reluctant to take action against Bank Saderat, which is principally faulted by the US for funnelling funds to Hizbollah, the Lebanese Shia movement. The Islamist organisation is not on the EU's list of proscribed terrorist organisations.

Throughout the past year, Iran has continued to expand its nuclear programme, announcing plans last month to install 6,000 new centrifuges to enrich uranium – although many western diplomats and analysts question their efficiency.

While Iran insists its programme is purely peaceful, the US and its allies accuse it of seeking to develop nuclear weapons.

US diplomats add that at present they are reluctant to embark on an attempt to pass another UN Security Council resolution because of the risk that it will provide meagre returns while highlighting differences with Russia and China, which are sceptical about further sanctions.

But Mr Levey said the financial sanctions, international warnings about the risk of money laundering and terror-financing in Iran, and related moves by international banks to scale down business with Tehran had had a big impact.

"It certainly has made the cost of financing [in Iran] to the extent that anyone has offered it at all, much more expensive," he said.

http://money.ninemsn.com.au/article.aspx?id=563862

Analysts: al-Qaida awash in funds despite meltdown

The meltdown in the global financial system may spare al-Qaida.

Buoyed by years of record oil revenues in the Gulf and Afghanistan's booming drug trade, al-Qaida and other Islamic terrorist groups are thought to have access to strong potential funding sources — and thus might dodge fallout from the global crunch devastating others.

Yet all is not lost in the effort to rein in money for terror groups. One principal reason the groups may avoid fallout now is because they've been forced to pull away from banks, relying instead on less-efficient ways to move money.

Those methods — including hand-carrying money and using informal money-transfer networks called hawalas — likely will shield extremists from the current banking system turmoil.

But the methods also are slower and less efficient ways to move money — and thus could hamper efforts to finance attacks, analysts say.

"It would be inconceivable that large amounts of (terror-linked) money would transit through the formal financial system, because of all the controls," said Ibrahim Warde, an expert on terrorist financing at The Fletcher School at Tufts University.

The question of where al-Qaida and sympathizers get their money has long been crucial to efforts to prevent terror attacks. A 2004 U.S. investigation found that banks in the United Arab Emirates had unwittingly handled most of the $400,000 spent on the Sept. 11 attacks.

After the attacks, the U.S. made an aggressive push to use law enforcement techniques to disrupt terrorist financing networks and worked with allies to improve their own financial and regulatory institutions.

Despite those efforts, wealthy donors and Islamic charities in the oil-rich Gulf, especially in Saudi Arabia, continue to be "one of the most significant sources of illicit financing for terrorism," said Matthew Levitt, a former U.S. Treasury Department terrorism expert now with The Washington Institute for Near East Policy.

The Saudis have long insisted they are doing all they can to rein in terror financing, and U.S. officials have praised their efforts.

But, under a system known as zakat, wealthy Muslims are required to give a portion of their money to the poor. Much of that is given to Islamic charities, and U.S. officials say at least some of the charities money continues to be channeled to al-Qaida and other terror groups.

Saudi Arabia and other Gulf countries have benefited over the last two years from a surge in oil prices from about US$60 per barrel at the beginning of 2007 to more than US$145 per barrel in the middle of this year.

Oil prices have fallen almost 50 percent in the last few months in response to the global financial crisis, but not before the run-up generated hundreds of billions of dollars.

Levitt said the covert nature of terrorist financing makes it difficult to determine a direct correlation between rising oil revenues over the last few years and the amount of cash al-Qaida has on hand.

But "it stands to reason that if there is more oil revenue, there will be more revenue for all kinds of things licit and illicit," he said.

Al-Qaida and the Taliban have also benefited from the drug trade's growth in Afghanistan after the U.S.-led invasion in 2001 — a booming business that likely won't be affected by the global slowdown.

Opium cultivation has fallen slightly this year but is still about 20 times higher than in 2001, according to the U.N. Office on Drugs and Crime.

Former U.S. drug czar Gen. Barry McCaffrey, who now works with NATO, issued a report on Afghanistan in July saying al-Qaida and the Taliban "are principally funded by what some estimate as $800 million dollars a year derived from the huge $4 billion annual illegal production and export of opium/heroin and cannabis."

Al-Qaida and other extremist groups have gloated in recent weeks about the West's financial woes, painting the crisis as either divine punishment for supposed wrongs or the last gasps of a dying empire.

An American al-Qaida member, Adam Gadahn, said in a video released this month that "the enemies of Islam are facing a crushing defeat, which is beginning to manifest itself in the expanding crisis their economy is experiencing."

Members of the militant Palestinian group Hamas and hard-liners in Iran also cheered the economic turmoil.

Iran is thought to be the last major government supporter of terror groups. The majority Shiite country is not believed to finance al-Qaida, a Sunni group, but does support the militant Hezbollah faction in Lebanon, which engaged in war with Israel in 2006.

Iran denies the financial crisis is hurting its economy, but falling oil prices will cut into its crude sales, which make up 80 percent of the government budget. It is unclear how that will affect support to Hezbollah.

Despite the apparent glut in potential money for terror groups, Levitt believes anti-terrorism efforts have hampered the groups' ability to transfer money where they want.

Levitt points to several messages from senior al-Qaida leaders in Pakistan and Afghanistan intercepted by the U.S. or released by the terrorist group itself, asking Gulf supporters for more help because of funding shortfalls. Most recently, the al-Qaida leader in Afghanistan, Mustafa Abu al-Yazid, appeared in a May 2007 video saying "the mujahideen of the Taliban number in the thousands, but they lack funds."

But Warde and other analysts are not convinced al-Qaida is really hurting.

"Anybody who is involved in fundraising of any sort is never going to say we have enough money, so I think it is a silly argument to say that because there is this intercept ... it is proof that everything we've done has succeeded brilliantly," said Warde.

Source: Ohio.com

Americans sue Swiss bank on Iran

A group of Americans subjected to attacks in Israel have sued UBS AG, claiming
the Swiss bank helped 'militants' by providing cash to Iran.

Some 50 US citizens hurt, along with the relatives of those killed, in attacks in Israel during 1997-2006, demanded that the Swiss bank UBS AG pay them more than $500 million in compensation.

In to the lawsuit filed Friday in New York, they claimed that since 1996, Iran provided 'millions of cash annually to Hezbollah and Hamas to carry out attacks'.

Robert Tolchin, lawyer of plaintiffs, claimed that without the money, 'their ability to carry out attacks ... would have been severely limited and crippled'.

UBS has cut its business with all of its clients in Iran since 2006.

The US' claims that Iran is funding Hamas and Hezbollah are widely seen as part of the US-led psychological operations to demonize Tehran.

The US efforts to control or undermine Iran are long-standing and are rooted in Iran's historic role as the most important power in the Middle East, able to contend with US domination in the region.

Over recent years, the US has tried to pit Iran against other regional countries by claiming that Iran is providing arms to Hamas and Hezbollah -- charges vehemently denied by Tehran which insists it provides moral support to the resistance movements.

This is while the Paris-based Financial Action Task Force (FATF) Watchdog said in an April statement, "Since its October 2007 plenary meeting, the FATF has engaged with Iran and welcomes the commitment made by the country to improve its Anti-Money Laundering/Combating the Financing of Terrorism measures."

http://www.presstv.ir/detail.aspx?id=55443§ionid=351020101

Money-laundering charges leveled on Yemeni trio

A federal grand jury has brought money-laundering charges against three Yemeni men for allegedly transferring money into overseas accounts they believed were controlled by the Islamic terrorist organization Hezbollah.

The charges were brought against Yehia Ali Ahmed Alomari, 27; Mohamed Al Huraibi, 41; and Saleh Mohamed Taher Saeed, 28, who ran mini-marts in southwest and northeast Rochester.

The indictment, handed up Wednesday, alleges money laundering and conspiracy to commit money laundering.

The three were arrested in March 2007 and are in federal custody. They were indicted after attempts at plea negotiations failed.

If convicted, Alomari, Al Huraibi and Saeed face up to 20 years in prison and a $250,000 fine, U.S. Attorney Terrance P. Flynn said.

The U.S. Immigration and Customs Enforcement began an investigation in January 2005 after banking records showed that a Social Security number assigned to Saeed was associated with 324 overseas currency transactions totaling $12.3 million from October 2002 through November 2004.

An undercover officer from the immigration agency allegedly arranged with Alomari, Al Huraibi and Saeed to send $100,000 to overseas accounts which the officer maintained were controlled by Hezbollah, the prosecution said. The officer claimed the money had been earned through illegal activities, the prosecution said.

The charges don’t allege that Alomari, Al Huraibi and Saeed had connections to Hezbollah, but knowingly sent money to accounts they believed were controlled by the organization. The accounts were actually controlled by the federal government.

http://www.democratandchronicle.com/apps/pbcs.dll/article?AID=/20080508/NEWS01/80508022/1002/NEWS

Treasury Revokes Iran's U-Turn License

Under Secretary for Terrorism and Financial Intelligence Stuart Levey announced Thursday that the Treasury Department has revoked Iran's U-turn license, further restricting Iran's access to the U.S. financial system. Prior to this action, U.S. financial institutions were authorized to process certain funds transfers for the direct or indirect benefit of Iran, provided such payments were initiated offshore by a non-Iranian financial institution and only passed through the U.S. financial system en route to another non-Iranian financial institution. Treasury's move follows a series of U.S. government actions to expose Iranian banks' involvement in the Iranian regime's support to terrorist groups and nuclear and missile proliferation.

November 6, 2008
HP-1258

Fact Sheet: Treasury Strengthens Preventive Measures Against Iran

On October 16, the Financial Action Task Force (FATF), which has members representing 32 jurisdictions and is the world's premier standard-setting body for anti-money laundering and counter-terrorist financing (AML/CFT), warned for the fourth time about the risks posed to the international financial system by continuing deficiencies in Iran's AML/CFT regime. The FATF called for all countries to strengthen preventive measures to protect their financial systems from this risk. Additionally, the UN Security Council called upon all states in March 2008 to exercise vigilance over the activities of financial institutions in their territories with all Iranian banks.

Consistent with these multilateral calls for action, the Treasury Department is revoking the "U-turn" general license today to protect U.S. financial institutions individually, and the U.S. financial system as a whole, from the significant terrorist financing and proliferation risks posed by Iran. This regulatory action will close the last general entry point for Iran to the U.S. financial system.

Iran's access to the international financial system enables the Iranian regime to facilitate its support for terrorism and proliferation. The Iranian regime disguises its involvement in these illicit activities through the use of a wide array of deceptive techniques, specifically designed to avoid suspicion and evade detection by responsible financial institutions and companies. Iran also is finding ways to adapt to existing sanctions, including by turning to non-designated Iranian banks to handle illicit transactions.

The Treasury Department is taking a range of measures, including today's action, to counter these deceptive activities. The Treasury Department encourages all jurisdictions to adopt robust preventive measures consistent with the FATF warnings and relevant UN Security Council Resolutions (UNSCRs).

Iran Misuses the International Financial System to Support Terrorism

Iran is the world's most active state sponsor of terror. The support provided by the regime to terrorist groups includes financing that is routed through the international financial system, especially through Iranian state-owned banks.

Iran's Support to Terror. The Department of State designated Iran as a state sponsor of international terrorism in 1984, and Iran remains the most active of the listed state sponsors of terrorism, routinely providing substantial resources and guidance to multiple terrorist organizations. For example, Hamas, Hizballah, and the Palestinian Islamic Jihad (PIJ) maintain representative offices in Tehran to help coordinate Iranian financing and training of these groups.

Iran's IRGC and IRGC-Qods Force Support Terrorist Groups. Elements of Iran's Islamic Revolutionary Guard Corps (IRGC) have been directly involved in the planning and support of terrorist acts throughout the world, including in the Middle East, Europe and Central Asia, and Latin America. The IRGC-Qods Force, which has been designated under Executive Order 13224 for providing material support to the Taliban and other terrorist groups, is the Iranian regime's primary mechanism for cultivating and supporting terrorist and militant groups abroad. Qods Force-supported groups include: Lebanese Hizballah; Palestinian terrorists; certain Iraqi Shi'a militant groups; and Islamic militants in Afghanistan and elsewhere. The Qods Force is especially active in the Levant, providing Lebanese Hizballah with funding, weapons and training. It has a long history of supporting Hizballah's military, paramilitary and terrorist activities, and provides Hizballah with more than $100 to $200 million in funding each year. The Qods Force continues to provide the Taliban in Afghanistan with limited weapons, funding, logistics and training in support of anti-U.S. and anti-coalition activities.

Iran Uses its Banks to Finance Terrorism. In a number of cases, Iran has used its state-owned banks to channel funds to terrorist organizations. Between 2001 and 2006, Bank Saderat transferred $50 million from the Central Bank of Iran through Bank Saderat's subsidiary in London to its branch in Beirut for the benefit of Hizballah fronts that support acts of violence. Hizballah also used Bank Saderat to send funds to other terrorist organizations, including Hamas, which itself had substantial assets deposited in Bank Saderat as of early 2005. The Treasury Department designated Bank Saderat under E.O. 13224 for providing financial services to Hizballah, Hamas and PIJ. Australia has also designated Bank Saderat. Iran's Bank Melli, which has been designated by the United States under E.O. 13382 for proliferation-related activities, was used to transfer at least $100 million to the IRGC-Qods Force between 2002 and 2006.

Iran Lacks a Counter-Terrorist Financing Legal Regime. In addition to its regime-directed support to terrorist organizations, Iran continues to lack a legal framework to counter the risk of terrorist financing and has not indicated a willingness to address this deficiency. The FATF's October statement on Iran notes that, while Iran has taken some steps towards implementing an anti-money laundering regime, there is a lack of even such a minimal "corresponding effort" by Iran in the area of counter-terrorist financing.

Iran Misuses the International Financial System to Facilitate Proliferation

Iran Continues to Pursue Nuclear Capabilities and Develop Ballistic Missiles. In addition to its active support to terrorist and militant activities, Iran continues to defy the international community by pursuing nuclear capabilities and developing ballistic missiles in violation of five UNSCRs. Iran's failure to comply with these various resolutions has resulted in the UN Security Council's imposing sanctions against Iran. These have included specific provisions aimed at preventing Iran from abusing banks and the international financial system to pursue nuclear capabilities and develop ballistic missiles.

Iran Uses its Banks to Finance its Nuclear and Missile Programs. Multiple Iranian financial institutions have been implicated in facilitating Iran's nuclear and ballistic missile programs.

➢ Bank Sepah. Iran's state-owned Bank Sepah has been designated in the United States under E.O. 13382 and by the UN Security Council under UNSCR 1747. Bank Sepah has provided direct and extensive financial services, such as arranging financing and processing dozens of multi-million dollar transactions, for the Shahid Hemmat Industries Group (SHIG) and the Shahid Bakeri Industries Group (SBIG), two Iranian missile firms designated by the UN Security Council in UNSCR 1737 and identified by President Bush in the Annex to E.O. 13382 for their direct roles in advancing Iran's ballistic missile programs. Bank Sepah also has provided financial services to SHIG's and SBIG's parent entity, Iran's Aerospace Industries Organization (AIO), which also was identified by President Bush in the Annex to E.O. 13382 for its role in overseeing all of Iran's missile industries.

➢ Bank Melli. Iran's largest state-owned bank, Bank Melli, has facilitated numerous purchases of sensitive materials for Iran's nuclear and missile programs on behalf of UN-designated entities. In doing so, Bank Melli has provided a range of financial services to known proliferators, including letters of credit and the maintenance of accounts. The United States, the European Union, and Australia have designated Bank Melli.

➢ Bank Mellat. Iran's state-owned Bank Mellat has provided banking services in support of Iran's nuclear entities, namely the Atomic Energy Organization of Iran (AEOI) and Novin Energy Company. Bank Mellat, which was designated pursuant to E.O. 13382 in October 2007, has serviced and maintained AEOI accounts, mainly through AEOI's financial conduit, Novin Energy. Bank Mellat has facilitated the movement of millions of dollars for Iran's nuclear program since at least 2003.

➢ Export Development Bank of Iran. On October 22, 2008, the Treasury Department designated the Export Development Bank of Iran (EDBI) under E.O. 13382 for providing or attempting to provide financial services to Iran's Ministry of Defense and Armed Forces Logistics (MODAFL), which had been designated by both the European Union and the United States for its involvement in Iranian proliferation activities. Some MODAFL scientists and officials have also been designated by the UN. The EDBI provides financial services to multiple MODAFL-subordinate entities that permit these entities to advance Iran's WMD programs. Furthermore, the EDBI has facilitated the ongoing procurement activities of various front companies associated with MODAFL-subordinate entities. In addition, since Bank Sepah's designation by the United States and the UN Security Council, the EDBI has served as one of the leading intermediaries handling Bank Sepah's financing, including WMD-related payments. The EDBI has also facilitated financing for other proliferation-related entities sanctioned under U.S. and UN authorities.

International Focus on Proliferation Risks Associated with Iranian Financial Institutions. The role that Iranian financial institutions play in Iranian proliferation activities is underscored by UNSCR 1803, which was adopted in March 2008 and calls upon states to exercise vigilance over the activities of their financial institutions with all Iranian banks. The FATF issued guidance in October 2008 to assist countries in implementing this provision. That guidance recommends that jurisdictions encourage their financial institutions to take strong preventive measures for the mitigation of risks posed by Iranian banks, including refusing to process transactions involving Iranian banks when full information regarding the parties to the transaction is unavailable. The FATF guidance also recommends that jurisdictions encourage their financial institutions to reassess, and if necessary, terminate correspondent relationships with Iranian banks, and take steps to satisfy themselves that their correspondent relationships with non-Iranian financial institutions are not used to circumvent the risk-mitigation practices in place for Iranian banks.

Iran Uses Deceptive Financial Practices to Evade Sanctions

Iranian Commercial Banks. It has been a standard practice for Iranian financial institutions to conceal their identity to evade detection when conducting transactions. For example, Bank Sepah has requested that its name be removed from transactions in order to make it more difficult for intermediary financial institutions to determine the true parties to a transaction. Following the designation of Bank Sepah under UNSCR 1747, Bank Melli took precautions not to identify Bank Sepah in transactions. Bank Melli also has employed similar deceptive practices to obscure its involvement from the international banking system when handling financial transactions on behalf of the IRGC. In addition, when Iranian assets were targeted in Europe, branches of Iranian state-owned banks in Europe took steps to disguise ownership of assets on their books in order to protect assets from future actions.

Central Bank of Iran. The Central Bank of Iran (CBI), the sole Iranian entity that regulates all Iranian banks, has not only engaged in deceptive practices itself such as asking for its name to be removed from transactions but has also encouraged such practices among Iran's state-owned banks. For example, prior to EU and UN sanctions, the CBI attempted to help Banks Sepah and Melli protect their assets from being frozen. Later, the CBI instructed non-sanctioned Iranian state-owned banks to issue payment instructions on behalf of Sepah in order to circumvent sanctions. In the case of Bank Melli, the CBI provided substantive assistance to minimize the impact of sanctions. In fact, between January and March 2008, the CBI handled tens of millions of dollars in transactions to and from the accounts of U.S.- and UN-designated banks held at the CBI.

Use of Front Companies and Misuse of Bank Accounts. Iran hides behind front companies and intermediaries to engage in ostensibly legitimate financial and commercial transactions that are actually related to its nuclear or missile programs. Iranian entities form front companies outside of Iran for the sole purpose of exporting dual-use items to Iran that can be used in these programs. These front companies enable the regime to obtain materials that the country of origin would typically prohibit from being exported to Iran. Iran also has a history of using accounts set up for one purpose to facilitate activities with designated entities.

Use of Money Service Business Accounts. Iran also has exploited its relationship with certain foreign money service businesses, capitalizing on a business model where the absence of an ongoing account relationship may mean that less information is collected on certain transactions.

Effect of the Revocation of U-Turn License

OFAC has revoked the authorization of "U-turn" transfers for the direct or indirect benefit of Iran, through an amendment of the Iranian Transactions Regulations, 31 CFR part 560, to narrow the scope of existing 560.516. This action affects the "U-turn" class of funds transfers, which are so named because, while they are conducted on behalf of Iranian account holders and banks or in connection with Iran-related transactions, they only pass through the U.S. financial system on their way from one offshore non-Iranian financial institution to another.

As a result of today's action, U.S. depository institutions are no longer allowed to process "U-turn" transfers to or from Iran, or for the direct or indirect benefit of persons in Iran or the Government of Iran. The prohibition on U-turns applies not only to state-owned Iranian banks and the Central Bank of Iran, but also to privately-owned Iranian banks, Iranian companies, and the settlement of third-country trade transactions that involve Iran.

Allowable Transactions

Today's action will not affect funds transfers by U.S. depository institutions, through intermediary third-country banks, to or from Iran or for the direct or indirect benefit of the Government of Iran or a person in Iran arising from several types of underlying transactions including:

• A non-commercial remittance to or from Iran (e.g., a family remittance not related to a family-owned enterprise);
• The exportation to Iran or importation from Iran of information and informational materials;
• A travel-related remittance;
• Payment for the shipment of a donation of articles to relieve human suffering; or
• An underlying transaction authorized by OFAC through a specific or general license. Allowable funds transfers would include, for example, payments arising from over-flights of Iranian airspace, legal services, intellectual property protection, and authorized sales of agricultural products, medicine, and medical devices to Iran pursuant to the Trade Sanctions Reform and Export Enhancement Act.

Treasury Revokes Iran's U-Turn License

Washington, DC--The U.S. Department of the Treasury today announced that it is revoking the "U-turn" license for Iran, further restricting Iran's access to the U.S. financial system.

Treasury's move today follows a series of U.S. government actions to expose Iranian banks' involvement in the Iranian regime's support to terrorist groups and nuclear and missile proliferation.

Prior to today's action, U.S. financial institutions were authorized to process certain funds transfers for the direct or indirect benefit of Iranian banks, other persons in Iran or the Government of Iran, provided such payments were initiated offshore by a non-Iranian, non-U.S. financial institution and only passed through the U.S. financial system en route to another offshore, non-Iranian, non-U.S. financial institution. As a result of today's action, U.S. financial institutions are no longer allowed to process these U-turn transfers.

The Treasury Department previously designated Iranian state-owned banks Melli, Mellat, Sepah, Future Bank and the Export Development Bank of Iran for their roles in Iran's weapons proliferation activities, as well as Bank Saderat for providing support to terrorism. While these banks are already prohibited from taking advantage of the U-turn authorization, today's action ends this exception for all remaining Iranian banks, both state-owned and private, including the Central Bank of Iran.

As a member of the Financial Action Task Force (FATF), the United States today fulfilled its obligation to strengthen measures to protect the financial sector from the risks posed to the international financial system by Iran. In October 2008, FATF issued its fourth statement declaring that Iran continues to "pose a serious threat to the integrity of the international financial system" and called for countries worldwide to strengthen measures to protect their financial sectors from this threat.

To ensure that transactions relating to humanitarian aid for the Iranian people and other legitimate activities continue to flow, today's action will not affect funds transfers by U.S. financial institutions arising from several types of underlying transactions, including:

• Payment for the shipment of a donation of articles to relieve human suffering;
• A non-commercial remittance to or from Iran (e.g., a family remittance not related to a family-owned enterprise);
• The exportation to Iran or importation from Iran of information and informational materials;
• Travel-related remittances; and
• An underlying transaction authorized by Treasury's Office of Foreign Assets Control (OFAC) through a specific or general license.

Allowable funds transfers under specific or general OFAC licenses would include: payments arising from over-flights of Iranian airspace; legal services; intellectual property protection; and authorized sales of agricultural products, medicine, and medical devices to Iran.

This action will take effect when the amendment to the regulations is published in the Federal Register on November 10, 2008.

Prepared Remarks of
Under Secretary for Terrorism and Financial Intelligence Stuart Levey
On the Revocation of Iran's U-Turn License

Washington, DC--In September 2006, the Treasury announced that it was cutting off Iran's Bank Saderat from the U.S. financial system because the bank was facilitating the transfer of millions of dollars every year to terrorist groups. Along with that move, we launched a campaign to warn the world about how Iran's threat to our security also posed a threat to the integrity of the international financial system.

Since that time, we have shared information with foreign governments and financial institutions about how Iran is using its banks to finance its nuclear and missile programs and terrorist groups. We have provided reliable information to back up our words, demonstrating that even seemingly benign business with Iran should be cause for concern.

Combined with this outreach, the United States and a broad multilateral coalition have taken action against individuals and entities that support Iran's illicit activities. The United Nations Security Council has now adopted five resolutions against Iran, requiring sanctions on those involved in the regime's nuclear and missile programs and calling for vigilance when dealing with all Iranian banks because of the risks they pose. Many allies, including the European Union and Australia, have taken especially strong action to implement those resolutions, for example, by designating Iran's Bank Melli.

At the same time, many private financial institutions and companies worldwide have voluntarily shunned business with Iran. Banks see Iran's behavior as posing an unacceptable risk to their reputations, and they would rather forgo the business and preserve their integrity. Back in September 2006, I could count on one hand the major banks that had cut off or dramatically reduced their business with Iran. Now, there are only a few that have not done so.

There is now a global consensus that Iran poses an unacceptable threat to the international financial system. The Financial Action Task Force (FATF), which has members representing 32 jurisdictions and is the world's premier standard-setting body on combating money laundering and terrorist financing, issued its fourth warning on Iran last month, calling for countries worldwide to strengthen measures to protect their financial sectors from this threat.

In the face of all of this, Iran has chosen to continue its pursuit of a nuclear capability and ballistic missiles and to engage in the deceptive financial conduct necessary to do so. This conduct includes stripping Iranian names from transactions to hide Iran's involvement. Iran also uses front companies and non-designated Iranian banks to conduct business for designated proliferation entities, and it misuses bank accounts it holds in non-Iranian banks. The fact sheet we are providing today gives an overview of Iran's wide-ranging deceptive financial conduct.

As members of the FATF, we are fulfilling our obligation to strengthen measures to protect our financial sector from those risks. Therefore, today we are revoking the "U-turn" license for Iran, thus terminating the last general entry point for Iranian banks both state-owned and private to the U.S. financial system. U-turn transactions allowed U.S. banks to indirectly process payments involving Iran if they began and ended with a non-Iranian foreign bank. Given Iran's conduct, it is necessary to close even this indirect access.

In recent months, many U.S. institutions have refused to host these U-turn transactions for Iran. Still, the exemption was used by Iran as a hook to solicit foreign banks to process transactions through the United States on its behalf, sometimes with requests to substitute another bank or code word for the Iranian institution. With today's action, Iran's potential to manipulate U.S. financial institutions has been significantly curtailed.

We encourage all countries, both FATF members and others, to take action to protect the integrity of their financial systems from Iran.

Today's action is not aimed at the innocent people of Iran. The Iranian people are already struggling under the regime's gross economic mismanagement, which has led to spiraling inflation that is now at 30 percent and an unemployment rate that many experts believe to be well over 20 percent.

To ensure that we can continue to help the Iranian people, today's action does not affect otherwise permissible payments such as for shipments of food and medicine, family remittances, and the export of informational materials to Iran, among others.

The Iranian regime's policies have ensured Iran's political, economic and financial isolation. Iran is still faced with two clear paths: to continue as a financial pariah, isolated from the world, or to seize the benefit and opportunity that reintegration into the global community would bring. The choice is Iran's to make.

Source: US Department of Treasury

U.S. Cigarette Smuggling Still Funds Terrorism

A new report from the Republican staff of the House Homeland Security Committee says federal and state governments, especially New York's, must do more to combat cigarette smuggling because its profits fund terrorist entities abroad.

"Recent law enforcement investigations ... have directly linked those involved in illicit tobacco trade to infamous terrorist organizations such as Hezbollah, Hamas, and al Qaeda," states the report.

The disparity between state taxation of tobacco products along with the discounted prices to certain populations, such as Native Americans, garner cigarette smugglers huge profits.

"For example, a pack of cigarettes that costs $8 in New York and New Jersey will only cost $4 in 'tobacco states' like Virginia and North Carolina," the report explains. "The profit on a standard diverted load of 1,500 contraband cartons [of cigarettes] could be as high as $60,000."

Sometimes smugglers purchase cartons of cigarettes directly from tribal smoke shops because these shops are immune from state taxes applied to cigarette sales. For instance, a smuggler can buy a carton of cigarettes from a reservation smoke shop for $30 where in New York City the retail price for that same carton is $67.

New York state law enforcement officials estimate that a well-run cigarette smuggling operation can make $200,000 to $300,000 a week. "A large percentage of the money is believed to be sent back to the Middle East, where it directly or indirectly finances groups such as Hezbollah, Hamas, and al Qaeda," the report says.

Arab-Americans, the report says, have a corner on the cigarette smuggling market in New York where "tight-knit, nationality-based networks, primarily families through blood or marriage of Lebanese, Yemeni, Jordanian, and Palestinian descent" rely on Arab-owned convenience markets to peddle their contraband cigarettes. According to the report, 60 percent of all convenience stores are now Arab-owned in the state. The ethnic and familial character of the networks make it hard for law enforcement to penetrate these networks.

And as recent prosecutions have revealed, cigarette smuggling flourishes and has been linked to terrorist financing.

A Charlotte, North Caroline, cigarette smuggling ring led by Mohamad Hammoud exploited the $.50 sales tax on a carton of cigarettes in North Carolina by shipping cartons to Michigan, where the sales tax is $7.50 per carton. The criminal enterprise racked up $8 million dollars in four years. Law enforcement officials believe Hammoud sent $100,000 of his earnings to Hezbollah by the time he was arrested in 2000.

Demonstrating the reservation nexus to Arab American cigarette smuggling and terrorist financing, two women from the Seneca Nation of Indians' Cattaraugus reservation in New York were sentenced in 2003 for their role in supplying tax-free cigarettes to Hezbollah-linked smugglers in Dearborn, Michigan. The smuggling ring's leader, Lebanese-born Elias Mohamad, had direct ties to the Shiite terrorist organization, prosecutors argued.

In 2004, Aref Ahmed was convicted of conspiracy to commit money laundering and smuggling contraband cigarettes. He has also popped up in the case of the "Lackawanna Seven" where he reportedly paid for their travel from Buffalo, New York, to Afghanistan for terrorist training.

The report also charges that while the link between reservation cigarette smuggling and terrorist financing is clear, New York state has looked the other way and in the process "created a safe haven for illicit smuggling networks."

Quoting a New York State Department of Health report, the committee's Republican staff state that the state loses between $436 million and $576 million in taxes to the sale of illicit cigarettes. Nevertheless, New York state ignores this, the report charges, "despite the fact that these illicit profits are leaving the state and being sent overseas to Jordan and Lebanon, among other countries."

If the Empire State does not crack down on cigarette smuggling starting beginning with tax-free cigarettes sold off reservations, the report argues, it will not only jeopardize state tax revenue but "our continued security."

Source: Chappyreport

U.S. says Iran increasing activity in Latin America

Iran is increasing its activity in Latin America and the Caribbean, including actions aimed at supporting the Lebanese militant group Hezbollah, a top U.S. military commander said on Tuesday.

Navy Admiral James Stavridis, who oversees U.S. military interests in the region as head of U.S. Southern Command, also said Hezbollah was linked to drug-trafficking in Colombia.

"We have seen... an increase in a wide level of activity by the Iranian government in this region," Stavridis told the Senate Armed Services Committee.

"That is a concern principally because of the connections between the government of Iran, which is a state sponsor of terrorism, and Hezbollah," he said.

The U.S. State Department lists the Lebanese-based political and military movement as a terrorist organization.

Stavridis said Hezbollah activities in South America have been concentrated particularly in the border region between Brazil, Paraguay and Argentina, but also in Colombia.

"We have been seeing in Colombia a direct connection between Hezbollah activity and narco-trafficking activity," the commander added, without providing specifics.

Colombia said last October that it had smashed a drug and money-laundering ring suspected of shipping funds to Hezbollah.

Hezbollah has denied links to drugs and money-laundering and described allegations as part of a propaganda campaign aimed at harming its image.

President Barack Obama's administration has sought to move toward dialogue with Tehran, despite sharp differences on several topics including Iran's nuclear program. Iran says it only wants to generate power while the Washington and its allies accuse Tehran of trying to build a nuclear bomb.

Stavridis is the latest U.S. defense official to express concerns about Iranian influence in Latin America, where the left-wing governments in Venezuela, Cuba, Ecuador, Nicaragua and Bolivia have all become allies of Iran in recent years.

In January, Defense Secretary Robert Gates told the same Senate panel he was more worried about Iranian "meddling" than he was about Russia's activities in Latin America.

(Reporting by David Morgan, editing by Alan Elsner)

Source: Reuters

Organized Crime Embraces Film Piracy; Terrorists May Follow, Report Says

By Matthew Harwood

Film piracy by organized crime is flourishing worldwide, with some of the proceeds possibly financing terrorism, according to a new report from the RAND Corp. financed by the Motion Picture Association.

“If you buy pirated DVDs, there is a good chance that at least part of the money will go to organized crime and those proceeds fund more dangerous criminal activities, possibly terrorism,” said RAND’s Greg Treverton, the study’s lead author.

The criminal organizations that traffic pirated DVDs span the globe and often have multinational criminal connections. The report tells of one Italian crime boss turned government witness who explained the his organization's connection to Chinese and Taiwanese criminal gangs involved in film piracy and other acts of counterfeiting.

“Given the enormous profit margins, it’s no surprise that organized crime has moved into film piracy,” said Treverton.

The profits associated with film piracy are astounding, outperforming revenue generated from both Iranian heroin and Colombian cocaine. In Malaysia, a pirated DVD costs 70 cents to make and sells on a corner in London for $9, more than 1,000 percent markup.

The report also discusses three groups that have used film piracy to finance terrorism. The best-documented case involves the Irish Republican Army, which used film piracy among other criminal activities, to fund its terrorist campaign against the British government. Another case involves the D-Company, an Indian criminal group heavily involved in film piracy. In 1993, the group carried out a string of bombings on what became known as “Black Friday” in Mumbai, killing 257 people and wounding hundreds more.

The third example has the most relevance today.

In 2004, the U.S. government labeled DVD pirate and counterfeiter extraordinaire Assad Ahmad Barakat “a specially designated global terrorist” for transferring $3.5 million to Hezbollah. His criminal network operates within the heavily Lebanese tri-border area of Argentina, Brazil, Paraguay, in what RAND calls “most important center for financing Islamic terrorism outside the Middle East.” (For more on the connection between Islamic extremism, terrorist financing, and the tri-border region, see John Barham's "Hezbollah's Latin American Home," from the Feb. 2008 issue.)

RAND notes the boom in film piracy is directly linked to weak penalties when someone is caught and convicted, which is rare.

An individual convicted of selling counterfeit products in France can expect a maximum of two years in prison and a $190,000 fine compared to ten years in prison and a fine of $9.5 million if caught selling drugs. In the United States, 134 people were sentenced to federal prison for intellectual property crimes in 2002, while 1.5 million people were arrested for drug offenses nationwide in 2003.

If governments worldwide want to decrease the volume of counterfeited goods and cut off a possible avenue of terrorist financing, RAND recommends spending more money and manpower to address the problem while passing tougher penalties for those convicted of counterfeiting and other intellectual property crimes.

Source: Security Management

Alleged Hezbollah cell sold Canadian passport: FBI

The FBI has dismantled an alleged Hezbollah cell accused of arms dealing, depositing counterfeit money in a Canadian bank and selling a Canadian passport to support the Lebanese terrorist group.

Ten people from New York, New Jersey, Lebanon and Venezuela have been indicted and face up to 30 years in prison following an investigation that began in 2006, the U.S. Department of Justice announced on Tuesday.

The indictments link Hezbollah to a wide array of crimes, ranging from counterfeiting U.S. currency and money laundering to fencing stolen cars, cellular phones, laptops and Sony PlayStation 2 systems.

The case also implicates Iran and Syria in Hezbollah's illicit arms network. The suspects allegedly tried to ship guns to Latakia, a Syrian port they said was controlled by Hezbollah. And Hezbollah officials in Iran were allegedly involved in the weapons purchase.

During the investigation, one of the suspected ringleaders told an undercover agent that "Hezbollah receives a great deal of money from Iran" and "maintains small cells throughout the world." He cited the bombing of a Jewish centre in Argentina as an example.

"The allegations contained in this complaint demonstrate how terrorist organizations rely on a variety of underlying activities to fund and arm themselves," said David Kriss, the Assistant U.S. Attorney.

The group allegedly attempted to ship 1,200 Colt M-4 machine guns through Syria to Hezbollah. To raise money, it sold passports for $10,000, including a genuine Canadian passport into which a false page had been inserted.

A suspected ringleader of the group, Dib Hani Harb, is the son-in-law of Hassan Hodroj, a member of the Hezbollah Political Council. Hezbollah leader Hassan Nasrallah attended Mr. Harb's wedding.

Mr. Harb allegedly showed counterfeit U.S. currency to a witness, and said it had been manufactured in Iran. He said he had deposited $10,000 worth of the phony bills into a Canadian bank account.

Hezbollah is a militant Islamist group that is backed, trained and financed by Iran. It is a banned terrorist group under Canadian law. The Canadian government's official profile of Hezbollah accuses it of car bombings, hijackings and kidnappings in Western Europe, South America and Israel.

In a speech last month, RCMP Commissioner William Elliott warned that Hezbollah violence could spread to Canada. "While Hezbollah has not articulated any specific grievance with Canada, from its perspective any state that supports Israel or Israeli interests is the enemy, which casts a wide net," he said.

Charged are: Mr. Harb, Mr. Hodroj, Hasan Antar Karaki, Moussa Ali Hamdan, Hassan El-Najjar, Moustafa Habib Kassem, Latif Kamel Hazime, Alaa Allia Ahmed Mohamed, Maodo Kane and Michael Katz.

Source: National Post

sbell@nationalpost.com

David S. Cohen Remarks to the ABA/ABA Money Laundering Enforcement Conference

Good afternoon and thank you for that nice introduction. This conference, now in its 21st year, has always provided an essential forum for the discussion of key developments in the law and practice of anti-money laundering ("AML") and sanctions compliance, and so I am very pleased to have the opportunity to speak to you today.


As many of you know, I joined the Department of the Treasury this spring from private law practice, where I worked with many of you in building anti-money laundering and sanctions compliance programs and grappling with the often difficult legal, regulatory and prudential questions that arise in running those programs. Before that, I worked in Treasury's Office of General Counsel, and was part of Treasury's efforts in the late 1990s to internationalize our anti-money laundering laws. Along with my Treasury colleagues at the time, we drafted and sought to elicit Congressional interest in legislation that, after 9/11, formed the core of the AML provisions in Title III of the USA PATRIOT Act. So, I come here this afternoon with some understanding of, and appreciation for, the pressures you are under and the challenges you face. I also have a few ideas I would like to share with you about how we can work together on some very pressing issues – most importantly, disrupting the flow of funds derived from criminal activity, including possibly international organized crime, to terrorist organizations.

I would like to begin by briefly describing the scope of my responsibilities as Assistant Secretary for Terrorist Financing. First of all, do not let my title fool you – although I am the Assistant Secretary for Terrorist Financing, I am firmly against terrorist financing. The statute creating my office, which gives me my title, also charges me with "formulating and coordinating the counter terrorist financing and anti-money laundering efforts of the Department of the Treasury." In practice, this means that my colleagues and I in the Office of Terrorist Financing and Financial Crimes are focused on developing policy to combat all manner of illicit finance at home and abroad – from mortgage fraud to money laundering, from transactions facilitating WMD proliferation to those funding terrorists. This places my Office squarely in the middle of the national security issues and regulatory policy discussions that directly affect how you do your business and measure your risk. And it reinforces for me the point – which I understood while in private practice, but has been driven home to me since I returned to the Treasury Department – that the success of our policy to combat illicit finance is highly dependent on the quality of your efforts to comply with your AML/CFT legal and regulatory obligations.

Let me give you a few examples. For several years, the Treasury Department's Office of Terrorism and Financial Intelligence, led by Under Secretary Stuart Levey, has played a central role in the United States Government's efforts to prevent Iran from developing nuclear weapons and to combat Iran's support to international terrorist groups. As you know, the Obama Administration is pursuing a two-track strategy with Iran. This strategy is aimed at resolving international concerns over Iran's nuclear program diplomatically, while also making clear to the Iranian government that it faces increased isolation and pressure if it does not adequately resolve those concerns. We at Treasury have been especially focused on the second piece of the two-track strategy, working intensively to craft a plan for imposing additional pressure if the President determines it is appropriate to do so. While I cannot go into specifics, I can say that in the event that Iran's actions make it necessary to implement this plan, it seems quite likely that we will turn to you to help ensure the effective implementation of any financial, investment or trade-related measures that are imposed.

We are also focused on the difficult situation in Mexico, where President Felipe Calderon has undertaken a courageous fight against the drug cartels. The flow of drug proceeds and weapons across our southwest border is fueling violence in Mexico, and the criminal activity that it supports threatens the security of both Mexico and the United States.

At President Obama's direction, the entire United States Government is working very closely with our Mexican counterparts to combat the drug cartels. For its part, Treasury is taking a comprehensive approach to countering the illicit financial activity that fuels the drug trade and, more generally, supports the international criminal networks that are behind much of the violence. We are helping Mexico strengthen its laws and build the institutional capacity to execute those laws, and we are working with the Mexicans in joint task forces to exploit shared information and take coordinated action.

As many of you know very well, we are also using the Foreign Narcotics Kingpin Designation Act to identify significant drug traffickers in Mexico and expose and disrupt their financial networks. Over the last decade, the President has named 37 top-level – or "Tier I" – Mexican narco-traffickers, and Treasury's Office of Foreign Assets Control has followed up by designating over 250 individuals and entities tied to these Mexican traffickers. Recently, the President imposed Kingpin Act sanctions on three major Mexican narcotics organizations: the Sinaloa Cartel, Los Zetas and La Familia Michoacana. Again, your efforts to implement these sanctions, as well as your continuing efforts to detect, deter and deny drug traffickers access to the financial system, is critical to our strategy to combat this menace.

One last example. Working closely with Ambassador Richard Holbrooke, the State Department's Special Representative for Afghanistan and Pakistan, Treasury is deeply involved in the effort to deny financial support to the Taliban, al Qaida, the Haqqani network, Lashkar-e-Tayibba and other terrorist groups that are active in that region. The Treasury Department leads an interagency task force whose mission is to coordinate and enhance our actions to disrupt the terrorists' and insurgents' financial support networks while, at the same time, spurring the development of a well-regulated financial sector in Afghanistan and Pakistan. We oversee working groups focused on a diverse array of issues, ranging from improving the United States' engagement with our Persian Gulf allies to stem the flow of donations to the Taliban and other terrorist groups, to working with the Afghan and Pakistani governments to facilitate the development of mobile banking in both countries.

Now, when I mention sanctions against Iranian banks, or our anti-money laundering efforts aimed at drug traffickers' proceeds, I expect that you readily understand how a robust AML/CFT compliance program can contribute. Well-designed and well-implemented compliance programs protect your financial institutions from abuse, legal liability and reputational harm. Effective compliance programs also lead to the detection and reporting of valuable information that helps us identify illicit activity, target our enforcement resources and tailor our policies.

But it is also true that well-designed and well-implemented compliance programs contribute meaningfully in our drive to disrupt the funding channels for the Taliban, al Qaida and other terrorist groups. And some recent trends relating to how terrorist groups finance their deadly work have created new and significant opportunities for the private sector to make an even more substantial contribution to our mutual efforts to combat the financing of terrorism around the world. I would like to spend a few minutes explaining why this is so.

Over the past several years, working with our colleagues in law enforcement, we have achieved some real success in choking off the facilitation networks that link individual donors and terrorist organizations. Employing our authorities under Executive Order 13224, the Treasury Department has designated several organizations in the United States for funneling money to terrorists groups, including the al Qaida network, HAMAS and Hizballah. We have also designated a large number of foreign entities and individuals for financing terrorist organizations around the world, including donors, fundraisers and facilitators.

These targeted financial measures, used alongside other national security and law enforcement tools, have had a significant disruptive impact on terrorist financing networks, and not only with respect to the specific targeted or "designated" individuals and entities. By disrupting certain key financing nodes, we achieve the collateral benefit of interfering with the entire terrorist network's ability to move money. This degrades their ability to finance recruitment and training, and to plan and execute attacks.

Furthermore, our designations are a powerful deterrent to other would-be financiers. We may not be able to deter someone who, for ideological reasons, is committed to conducting a terrorist attack. But donors and facilitators are different. They may have transnational business dealings, property in the United States or other interests that require access to the international financial and commercial systems. Many see themselves as upstanding members of society. Being identified as a terrorist financier directly threatens those interests, and the fear of designation deters their conduct.

Steps taken by the private sector, moreover, have been an important force multiplier in combating illicit finance, including terrorist financing. Many foreign financial institutions voluntarily use our designation lists in their filtering software and policies and procedures because they have no interest in doing business with individuals and entities we have designated. These foreign financial institutions – just like the institutions represented here today – do not want to risk their reputations or their financial relationships with U.S. institutions by even inadvertently facilitating illicit business.

Al Qaida's current financial predicament represents one good measure of the success of these coordinated strategies. In the first six months of this year, al Qaida's leaders made four public appeals for money, including one in June of this year, when an al Qaida leader announced that a lack of funding was hurting the group's recruitment and training. We assess that al Qaida is in its weakest financial condition in several years, and that, as a result, its influence is waning.

This success is important. It is a sign that we are moving in the right direction. But let me be clear: We are not taking any victory laps – not even close – for several reasons. First, we know that there continues to exist a pool of donors who are ready, willing and able to contribute to al Qaida. We have, at least temporarily, disrupted some of the most significant facilitation networks between these donors and al Qaida. But we have not yet dissuaded nearly enough donors from wanting to give in the first place. To do so will require increased assistance from our partners in the Persian Gulf, Southeast Asia and elsewhere, in working with us in a sustained effort to counter radicalization.

Second, many other terrorist organizations – most prominently, the Taliban – are in much stronger financial shape than al Qaida. These other organizations continue to pose serious threats to US interests around the world.

And third, terrorist organizations, including parts of the al Qaida network, appear to be increasingly turning to conventional criminal activity to finance their operations. Due, in part, to the success we have had in disrupting their traditional funding sources, terrorist organizations' reliance on crime to finance their operations appears to be expanding. To be sure, this shift has presented some new and difficult challenges, but it also has created new opportunities that we – working together – can exploit. Simply put, to the extent that terrorist organizations increasingly turn to traditional criminal conduct to finance their activities, their funding networks become increasingly vulnerable to detection by well-designed, well-implemented, and well-funded AML/CFT programs.

Now, we know that terrorist organizations' use of crime to finance their violence is not a new phenomenon. In fact, the first material support for terrorism case to be tried to a jury in the United States involved the proceeds of a cigarette smuggling ring run by Hizballah operatives. A recent RAND study on Film Piracy, Organized Crime and Terrorism contains an entire section discussing Hizballah's expanding reliance on pirated music, movies and computer software to generate revenue.

Similarly, it is well known that the FARC, a designated Foreign Terrorist Organization, relies on drug trafficking, kidnapping for ransom and extortion schemes to raise money to fund its insurgency against the Colombian government.

We also know that historically some al Qaida cells have financed their activities through street crime, such as robberies and burglary, drug trafficking and bank fraud. In 2007, for example, British authorities arrested a 22-year-old man and accused him of supporting al Qaida in Iraq through a credit card fraud scheme, in which he had allegedly sold stolen credit card numbers online and purchased goods for fighters with the proceeds.

And in Afghanistan today, the Taliban finances attacks against U.S. and coalition forces through a wide range of criminal activity. It extorts funds from those involved in the heroin trade by demanding "protection" payments from poppy farmers, drug lab operators, and the smugglers who transport the chemicals in to, and the heroin out of, the country. It also demands protection payments from legitimate businesses seeking to operate in Afghanistan, especially in the southern and eastern regions of the country. You can be assured that some of the money it extorts moves out of the country and into the international financial system.

Moreover, as terrorist groups increasingly reveal a willingness to engage in criminal activities to raise funds, the risk that they will collaborate with international criminal organizations increases. Organized criminal enterprises, as we know, distort economic markets, undermine the rule of law in developing countries, compromise regulatory standards, place financial institutions at risk, and make it difficult for law-abiding businesses to compete. These enterprises seek to acquire wealth, influence and power by engaging in such illicit activity as counterfeiting, human trafficking, arms trafficking and drug trafficking.

Although these purely profit-driven criminal organizations are typically indifferent to the political and operational goals of terrorist groups, their willingness to take advantage of money-making opportunities could readily lead them to facilitate the activities of terrorists. We know that these criminal enterprises are more than willing to exploit the institutions they have corrupted – often through bribery or intimidation – and the distribution networks they have developed, for a wide variety of illicit activity. Their expertise in manufacturing, smuggling and distributing one type of contraband can be easily transferred – and increasingly is transferred – to other types of contraband and illicit activity. For example, it has become clear that Mexican criminal groups are no longer simply smuggling drugs. To increase their profits, they have offered up their smuggling routes and financial infrastructure to support such illicit activities as weapons trafficking and human trafficking.

Of course, international criminal organizations are harmful in their own right. In their wake, they leave corrupted financial institutions, insecure borders and broken bureaucracies. These weakened states, in turn, can become transit points for contraband or cash, and may themselves fall prey to exploitation by terrorist groups, as the state is no longer able to assert effective control over its own territory.

For these and other reasons, combating international criminal organizations has long been a priority for the Government, and still is. But the willingness of these criminal enterprises to allow terrorist groups to use their infrastructures poses a different, and even greater risk.

So what is the significance of terrorists' apparent increasing reliance on traditional criminal activity to generate funds, and the potential nexus between transnational organized crime and terrorist networks? As I mentioned earlier, I believe these developments create an opportunity for us, working together, to more effectively detect, disrupt and dismantle terrorist financing networks.

Financial institutions have long noted – with some justification – that terrorist financing can be very difficult to detect unless the Government provides a designation list or some other specific information about the individuals and front companies that are involved. It is the classic conundrum created by the fact that terrorist financing often involves good money being put to bad use, rather than bad money trying to find its way into the formal financial system without revealing its illicit source.

But the increasing use of financial crime by terrorist organizations to fund their activities places financial institutions in a much stronger position to detect terrorist financing, and to provide valuable information to the government to help us disrupt financing networks. Financial institutions have decades of experience in detecting and preventing money laundering and illicit activity. Your systems are tuned to detect the large movements of cash associated with cash-intensive crimes, such as drug trafficking or weapons trafficking. Your monitoring and reporting also provides us with valuable information about suspicious wire transfers and other transactions that are often indicative of the placement, layering and integration phases of the laundering cycle. And your "know your customer" procedures and due diligence practices provide you with the ability to avoid taking on problematic clients, and to monitor effectively the financial behavior of the clients you do have to ensure their activity is consistent with the purposes and profiles of their relationships with you. Indeed, with the advent of new technologies and ever more sophisticated programmatic infrastructures, you have become increasingly adept at all of these tasks.

As a result of the terrorist financing trends I have described, there is now a greater opportunity for you to provide us with actionable information that permits us to understand better how terrorist networks form, raise revenue and move their money. Although the suspicious transactions you detect in your financial institution may be several steps removed from a terrorist act, the information you provide is analyzed to protect against international terrorism. What may appear to be routine suspicious activity relating to criminal conduct – whether it be fraud, counterfeiting, or money laundering – could also be the critical piece of information necessary to map out a terrorist network. In short, because of the changing nature of terrorist financing, your hard work in preventing illicit transactions from flowing through your institutions is all the more crucial in our efforts to protect our national security.

We will continue to be aggressive and creative in our efforts to combat terrorist financing, and to assist you in your efforts to do so as well. But to be truly successful, we need the private sector to ensure that its systems, training and procedures continue to evolve with the changing nature of the threat. Well-designed AML/CFT programs, backed by the necessary commitment of money, personnel and management attention, will help protect your institutions from unwitting involvement in illicit activity. And now, more than ever before, well-designed and well-supported AML/CFT programs also generate the reports that help us target the deployment of our administrative, civil and criminal tools to detect, disrupt and dismantle terrorist activity, the development of terrorist financing networks and terrorist radicalization efforts.

Thank you for your time today, and, more importantly, thank you for everything you do to protect your financial institutions and our country. I look forward to working with you in the years to come.

Source: US Treasury - Press Room