58 red flags for terrorist financing

Numerous terrorism financing cases reveal suspicious transactions.

I recently read an eye-opening report titled Terrorism Financing Indicators for Financial Institutions in the United States by Richard Gordon, an American law professor who served on the International Monetary Fund (IMF) Task Force on Terrorism Finance following the September 11, 2001 attacks. The report revealed that suspicious financial transactions could be noted in more than a dozen terrorism-related prosecutions which were analyzed as part of a comprehensive study of terrorism financing for the United Nations Counter-Terrorism Implementation Task Force (CTITF). This jarring reality compelled me to share a few highlights from these cases (discussed later in this article) as they explicitly underline how immensely important it is for financial institutions to be diligent and vigilant in their monitoring and reporting of suspicious activity.

This sentiment was very strongly voiced by the Director of FinCEN last month in a speech which focused on terrorist financing and the important fact that BSA reports filed by financial institutions can identify suspicious activity which may ultimately prove to be related to the funding of terrorism. This stance was also endorsed by renowned counter-terrorism expert Richard Barrett at a congressional hearing before the Task Force to Investigate Terrorist Financing last week. Mr. Barrett testified that “Suspicious Activity Reports filed by financial institutions may provide possible indicators of terrorist planning worthy of investigation”. I have included some brief snippets from these commentaries and others below.

Finally, I’ve concluded this article with 58 red flag indicators for terrorist financing from four different sources. I opted to provide readers with the original lists as compiled by these sources rather than remove redundant indicators and consolidate into a single list since the nuances of the different wording provides more detail or specifics in some cases for the noted indicators.

Director of FinCEN shares that 18% of the FBI’s international terrorism cases in 2014 had related BSA filings and urges financial institutions’ “continued vigilance and support.”

A few weeks ago, the Director of FinCEN, Jennifer Shasky Calvery, made terrorist financing the theme of her speech at an anti-money laundering seminar for bankers. Director Calvery informed the attendees that “The reporting your institutions provide has already proven to be an essential component in identifying foreign terrorist fighters, their financial facilitators, and the flow of funds” and she urged financial institutions’ continued vigilance and support. She provided statistics that FinCEN processes about 50,000 new filings each day and that automated business rules related to ISIL, alone, generate over 800 matches each month for further review and exploitation. She added that “Foreign terrorist fighters may use an ATM, a money services business (MSB), or a depository institution to send or receive funds to facilitate travel to Iraq and Syria”. Director Calvery stressed that “there is no doubt at FinCEN, or amongst our partners across government, that the reporting your financial institutions provide is essential to our efforts to disrupt, degrade, and ultimately defeat al-Qa’ida, ISIL and other terrorist groups”. As Juan Zarate, former Deputy Assistant to the President and Deputy National Security Advisor for Combating Terrorism so aptly put it – “Money is their [terrorist groups] enabler, but it’s also their Achilles’ heel.”

Sample Case Highlights – Credit Card Fraud; Wire Fraud; Bank Fraud and Money Laundering Structuring

One noteworthy case in the above mentioned report Terrorism Financing Indicators for Financial Institutions in the United States involved two small businesses – a deli and an ice cream shop. The case highlighted 12 feeder accounts held at multiple U.S. banks. Money was deposited into the feeder accounts by various means, including check deposits, cash deposits, and wire transfers. Bank records for the 12 feeder accounts revealed 3,252 cash deposits. The deposits were structured to avoid reporting requirements. Only one of them was a cash deposit for more than $10,000 triggering a reporting requirement. However, on each of several hundred days, an aggregate of more than $10,000 was deposited into the feeder accounts. The ice cream shop also operated as an unlicensed and unregistered money transmitter and over an eight year period, $22.1 million was deposited into the feeder accounts even though the small shop only had annual revenue of about $185,000. The funds were subsequently consolidated into a central account in the U.S. using checks and wire transfers from the 12 accounts; and $21.9 million was wired from the central account on behalf of customers in the U.S. to accounts in 25 countries, ultimately making its way back to Yemen. The recipient operators who controlled the accounts in those countries exchanged the funds into local currency and distributed payments to the intended beneficiaries. Evidence showed that the money transfers were tied to funding for al-Qaeda and Hamas. This case clearly illustrates that terrorist financers often uses classic money laundering typologies regardless of whether they are trying to launder the proceeds of crime. The study concluded that “by using standard anti-money laundering typologies financial institutions should have been able to identify fourteen instances of terrorism financing as being suspicious”, even though the FI might not see on the face of it that the suspicious activity was in fact linked to terrorism financing.

Other terrorist financing cases have involved bank fraud, credit card fraud, wire fraud, identity fraud and a host of criminal activities which we typically consider much less grave than the funding of terrorism. The FBI has indicated that numerous terrorist investigations have resulted from financial information provided by the financial sector and that is has assisted with connecting the dots.

“Terrorism Financing Version 2.0” – Counter-terrorism Experts Highlight A Dangerous Union: The Intersection of Terrorism and Organized Crime

A distinguished panel of witnesses all emphasized one dominant trend at last week’s congressional hearing before the Task Force to Investigate Terrorist Financing – terrorists increasingly are turning to crime and criminal networks for funding. Chairman Mike Fitzpatrick commented in his opening remarks that “Terrorist groups have become entwined with trans-national criminal syndicates – or in some cases evolving into the role themselves – engaging in criminal activities which yield greater profits than simply relying on state sponsorship or big pocket donors.” Expert after expert witness confirmed that shared view. The words in their testimonies were different but their message was the same. As terrorist groups have become larger and more organized and have sought to raise more money, they have been forced into closer cooperation with organized criminals and have copied some of their methods. Although terrorists continue to raise money through “legal” means such as collecting funds from witting or unwitting donors through established charities or by direct donation, David Asher, Board of Advisors Member for The Center on Sanctions and Illicit Finance referred to the emergence of a trend which he termed “Terrorism Financing Version 2.0”. Mr. Asher elaborated that “Version 2.0 represents a vast evolution above and beyond the traditional religious charities, mosques, and jihadi financiers and involves a substantial embrace of transnational organized crime.” As illicit finance expert Douglas Farah succinctly summarized – “The TOC [Transnational Organized Crime] / terrorism divide is increasingly disappearing.”

In some cases, terrorist groups primarily pursue criminal activities for fundraising purposes. According to the DEA, 22 of 59 Foreign Terrorist Organizations (FTOs) in 2014 were linked to drug trafficking. The DEA, the FBI, and the intelligence community have focused more and more attention on the nexus between drugs and terror and the U.S. Attorney for the Southern District of New York has merged its international drug and foreign terrorism sections because of the intimate link between the two. Juan Zarate who testified before the Task Force last month, stated that “America’s enemies – drug trafficking cartels, organized crime groups, militant groups, and terrorists – are finding each other, as a matter of convenience and opportunity.” Mr. Zarate emphasized that “the overlaps between the criminal underworld, illicit financial activity, and terrorist operations and funding will continue to evolve as marriages of convenience emerge in common areas of operation”.

To read the 58 red flag indicators for terrorist financing from four different sources, please click here.