Investigators seeking to stop the flow of money to Osama bin Laden’s Al Qaeda network are playing almost as important a role in the war on terrorism as the U.S. and U.K. bombers and troops attacking training camps and Taliban strongholds in Afghanistan.
By Tom Buerkle
November 2001
Institutional Investor Magazine
And just as there is no guarantee of a quick military triumph, there’s little prospect of a decisive victory on the financial front.
It’s not for want of trying. In a remarkable display of unity among bankers, law enforcement agencies and politicians since September 11, two U.S.-compiled lists of people and organizations with suspected links to Al Qaeda have been circulated around the world; funds have been frozen in Britain, Germany and the U.S.; and even offshore centers have begun cooperating. “It’s a different exercise, because we all saw the crime on TV,” says Andreas Hubschmid, an attorney on the executive committee of the Swiss Bankers Association in Bern. “We didn’t have the usual legal problems, namely, Do we have a legal request? So money that is somehow connected to that crime is criminal money.”
Politicians have moved quickly to close loopholes long exploited by terrorists and criminal organizations. In the U.S., Congress approved an antiterrorism bill that tightens requirements on financial services firms to know their customers and report suspicious transactions; it threatens sanctions against nations that refuse to comply. The European Parliament endorsed an anti-money laundering directive requiring lawyers as well as banks and brokers to report suspicious transactions.
These measures are welcomed by the Financial Action Task Force on Money Laundering. The Paris-based agency was set up by the Group of Seven in the late 1980s to coordinate a global fight against organized crime and now is waging a similar battle against terrorism.
“I haven’t seen any comparable political willingness” to attack a global financial regulatory problem, says Patrick Moulette, the former French Treasury official who serves as the FATF’s executive secretary. He says revulsion at the September 11 attacks “represents a unique opportunity to strengthen money laundering initiatives and efforts to stop terrorism financing.”
Virtually every expert concedes that cutting off the flow of funds to terrorists is tough. Until now authorities have focused on the laundering of proceeds from crimes, requiring U.S. banks to report cash transactions greater than $10,000. Al Qaeda, however, relies heavily on legitimate money that comes from charities and businesses like the Middle Eastern honey shops cited last month by the U.S. Treasury’s Office of Foreign Assets Control. “What we’re looking at is not where money has come from but where it may go,” says Richard Pratt, director-general of the Jersey Financial Services Commission. “That is a very difficult thing for a bank to know.”
Even existing laws are of questionable utility. U.S. authorities receive about 150,000 reports of suspicious transactions each year. But apparently none of them tipped off investigators to the activities of the 19 alleged hijackers of September 11, who reportedly used a variety of bank accounts and credit cards. In Britain the number of suspicious-transaction reports surged to 18,400 last year, but only 30 percent of the U.K.'s banks filed reports.
These problems pale in comparison with the challenges posed by hawala, the informal network of money agents that transfers large amounts of cash outside the banking systems of the Middle East and Pakistan, and such simple evasions as sending cash through courier companies. “So much of the money moves outside the banking system,” says Steven Simon, who headed counterterrorism at the National Security Council during the Clinton administration. Tighter controls are unproven as a preventive weapon, he says.
The FATF’s Moulette acknowledges the difficulty of stopping small-scale funds transfers. Even so, he insists authorities can impede the financing of large terror organizations by improving cooperation among countries’ intelligence services and financial regulators and keeping banks apprised of terrorists’ changing identities and techniques.
“This fight is something for the long term,” Moulette says. “Nobody ever pretended it would be easy.”
