Featured Article

Few signs of terrorist financing for banks to detect, says former IMF agent

Speaking at an anti-money laundering conference last year, Richard Gordon, an associate professor at Case Western University and the U.S. Director of the Canada-United States Law Institute, announced that he was working with the World Bank on a report about red flag indicators of terrorist financing.

The only problem, he noted, was that there were no clear red flags for financial institutions to detect. That’s because terrorists often obtain funding for their operations and training through incremental payments from otherwise legitimate charities, said Gordon.

What’s more, in an analysis of some 50 international terrorist financing cases, the charities and individuals who ran them did not appear on any government-issued terrorist blacklist, according to Gordon. As a result, banks had no means to determine whether a transaction that might fund a terrorist attack was suspicious, he said.

Gordon, a former International Monetary Fund agent who helped draft international counter-terrorism financing principles, recently took time out to speak with reporter Larissa Bernardes about the challenges financial institutions face when trying to detect terrorist financing.

Can you tell me a little about the World Bank report?

The report started as terrorist financing guidance. We wanted to see if there really are indicators for terrorist financing that financial institutions can look for. So, we started by studying terrorist financing cases from around the world.

Our focus has slightly shifted now because we’re looking at proven court cases of terrorist financing.

Have you been able to identify any indicators?

There really are no indicators. Even the Financial Action Task Force has said this in recently issued reports. We looked at charities and noticed that their financial transactions looked very straight forward—transactions an institution would not label as suspicious.

So, how can you monitor accounts for terrorist financing when there are no indicators of it?

An institution can’t do its due diligence when guidance does not exist.

Any idea when the report will be published?

No.

Do you have any suggestions on how financial institutions might try to prevent terrorist financing?

One possibility when dealing with a charity, for example, is to look at each individual involved in running the charity. When opening these accounts, compliance officers should ask for the names of board of officers and run their names through [a know your customer service] that vendors provide. If one of the individuals turns out to be suspicious, then the officer may want to consider not opening the account.

But this method has its limits because nothing may come up and the individuals involved in the charity may still be terrorist financiers. And, by doing this kind of snooping, you are turning the compliance officer into some type of private sector gumshoe. Shouldn’t it be the government’s job to look for these individuals? Shouldn’t it be the government’s job to identify the people connected with terrorism?

How would you rate the FATF on their terrorist financing guidance?

Their February report was nicely written but it’s clear that no typologies exist that suggest suspicious activity.

If compliance with anti-money laundering laws is essential to your organization, you’ll want to be connected to moneylaundering.com PREMIUM, the foremost web-based AML resource. A subscription entitles you to unlimited, year-long access to:

• Late-breaking AML news, posted on the home page for daily at-a-glance checks, supplemented with insightful analysis to help you understand how you may be affected

• Multiyear searchable archive, containing 2,000-plus documents and more than 3,000 news articles — a timesaving tool for your AML research

• Much, much more, including case studies, a resource library, “Test Your AML IQ” section, and the complete U.S. Bank Secrecy Act with section-by-section analysis

In short, moneylaundering.com PREMIUM saves you the time and trouble of finding “golden nuggets” of relevant AML information buried in mountains of data. We do the hard work for you!

Subscribe Today!