April 17

Increasing the Effectiveness of Anti-Money Laundering and Counter-Terrorist Financing Efforts Both Home and Abroad

MoneyFollowing 9/11, the United States realized that to better target terrorist networks and organized crime syndicates, a stronger anti-money laundering (AML) system needed to be implemented. This resulted in the USA Patriot Act including measures which required all financial institutions to implement effective AML programs to help fortify U.S. counter-terrorist financing (CTF) efforts. This effort was spearheaded by amendments to the Bank Secrecy Act (BSA) of 1970 under provisions included in Title III of the USA Patriot Act (USC 5311, 5330, 5331). These provisions basically expanded the size and scope of the Financial Crimes Enforcement Network (FinCEN) and officially merged the organization with the Department of Treasury.

FinCen was tasked with partnering with financial institutions and law enforcement agencies to detect indications of money laundering and terrorist financing, and resulted in many financial institutions creating Financial Intelligence Units (FIU) dedicated to this purpose. The Patriot Act requires that all Future Commission Merchants (FCMs), Introducing Brokers (IBs), Commodity Pool Operators (CPOs) and Commodity Trading Advisors (CTAs) establish AML programs and report to FinCEN regarding any financial transactions deemed to be suspicious under new regulations. This requirement led to the creation of the Web Based Currency and Baking Retrieval System (WebCBRS) in April 2010 and its replacement FinCEN Query in september 2012, which allows law enforcement and financial institutions a resource for “research in tax cases, tracking money laundering activities, investigative leads, and intelligence for the tracking of currency flows, corroborating information, and probative evidence” (Internal Revenue Service, 2010). The FinCEN Query database also allows users to generate (Suspicious Activity Reports (SARs), Currency Transaction Reports (CTRs), the Designation of Exempt Person (DOEP) and Registered Money Service Business (RMSB).

In addition to FinCen, the Department of Treasury also developed the Terrorist Finance Tracking Program (TFTP) (which collects data from the Society for Worldwide Interbank Financial Telecommunication (SWIFT)) in order to effectively target terrorist organizations by tracking the flow of money; allowing law enforcement to map these networks and identify key targets.

Another international effort to target terrorist financing and money laundering effort on a global scale has taken place within the Financial Action Task Force (FATF)/Groupe d’action financière (GAFI); an organization created in 1989 to ensure that member states implement and maintain effective AML measures on the domestic level. This organization has, over time, revised its recommendations to address new phenomenon such as terrorist financing and now the FATF focuses both on the implementation of domestic AML and CTF measures.

The comprehensive and fluid nature of U.S. AML/CTF mechanisms has allowed them to effectively identify and target money laundering and terrorist financing networks and to adapt to new challenges that have emerged as crime syndicates and terrorist organizations modify their money transfer schemes to avoid detection. However, while effective on the U.S. domestic level, this effectiveness is certainly not mirrored on the international level as some countries have proven reluctant to share intelligence and other key information that could help better identify crime syndicates and terrorist organizations. Also, while many nations have agreed to participate in global AML/CTF efforts, their cooperation is superficial at best; failing to produce any meaningful results on both the macro and micro levels.

An example of obstacles to global AML/CTF operations can be found in the Middle East and North Africa Financial Action Task Force’s (MENAFATF) struggle to combat money laundering and terrorist financing within its jurisdiction. The Hawala system (an informal money transferring system widely used throughout the region) has proven extremely difficult to regulate; for both political and cultural reasons. Also, trying to regulate Zakat (charitable giving considered one of the five pillars of Islam) throughout the Middle East has proven quite difficult as well; especially during the Hajj when it is most prevalent. While a majority of these funds is going to legitimate sources, a small portion is being funneled to terrorist groups, who use these mechanisms to move money without detection. To more effectively combat money laundering and terrorist financing the MENAFATF countries will need to implement effective measures to regulate both Hawala and Zakat. While the organization has come out with a list of best measures which could be used to improve oversight of these systems, they remain a problem. The catalyst for MENAFATF to implement more effective policies could be found in increased U.S. and European pressure on MENAFATF to adopt such measures. Should such measures be implemented, global AML/CTF efforts will become much more effective.

While the U.S. AML/CTF system appears to be working quite well, its effectiveness would increase tremendously if combined with effective measures implemented by other nations; especially those which have so far failed to properly implement AML/CTF policies. Currently the FATF lists the two top no-compliant states to be Iran and the Democratic People’s Republic of Korea (DPRK). These states are followed by Algeria, Ecuador, Ethiopia, Indonesia, Myanmar, Pakistan, Syria, Turkey, and Yemen; countries which, while acknowledging the need to implement AML/CTF mechanisms have failed to do so. This is a major problem that has effected AML/CTF efforts on both the domestic and international levels and certainly needs to be addressed by the U.S. and its allies in order to improve the effectiveness of global AML/CTF operations.

Bibliography

Financial Action Task Force. (2014, February 14). High-risk and non-cooperative jurisdictions. Retrieved from Fatf-Gafi.org: http://www.fatf-gafi.org/topics/high-riskandnon-cooperativejurisdictions/documents/public-statement-feb-2014.html
Internal Revenue Service. (2010, April 2). Currency & Banking Retrieval System (WebCBRS) – Privacy Impact Assessment. Retrieved from IRS.Gov: http://www.irs.gov/pub/irs-pia/webcbrs-pia.pdf