Combatting Financial Crime & Terrorism Financing

Transcription

1 Combatting Financial Crime & Terrorism Financing Afzal Ashraf PhD

2 Big Topic, Little Time Subjects Covered Countering Terrorist Finance (CFT) Financial Crime Commonality of Approach (Measures, Mitigation and Prevention) Some CFT challenges

3 Low Cost High Impact Not Expensive: Madrid rail attack, March ,000 London, 7/ attacks 8,000 AQAP Printer cartridge plot, October 2010 $4,200 Boston Marathon Bombing, April 2013 $600 Paris, November ,000 9/11 Attacks $400,000-$500,000

4 What Terrorists Need Money For Terrorist financing provides funds for terrorist activity. It may involve funds raised from legitimate sources, such as personal donations and profits from businesses and charitable organizations, as well as from criminal sources. Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) Terrorism Requires, People, Technology and Transport Requires Individuals to Devote Time to Planning and Execution Surveillance Training Final Attack Costs Recruitment Propaganda (Multimedia/internet) Equipment and Life Support Travel Safe Houses Communications Documentation (False Identities etc) Most need money for dependants if they die

5 Where Terrorist Get Financing? State sponsorship ( e.g Hezbollah) Extortion Sometimes called Revolutionary Tax ( e.g LTTE) Private donations (Kuwait/Qatar) to AQ/ISIS Drug smuggling Taliban Illegal gold mining - FARC Kidnapping AQ in the Islamic Meghrib Charities PIRA Petty crime homegrown salafi jihadists Mugging Operations - Daesh

6 Direct Appeals And what better answer to give Allah than to reply by saying you gave your precious wealth to the Mujahidin who were fighting to uphold Sharia. If you did not fight, at least you can have the honour of financially aiding those who did Abu Saeed Al Britani, Financial Jihad September 2015 Sample costs in Riyals - preparing a Mujahid 8,000 - AK 47 6,000 - motorcycle 4,000 - water well 1,600 - Martyr s family sheep sacrifice hand grenade Ansar al-furqan fundraising campaign for money and weapons on Twitter, May 2015

7 Western Foreign Fighter Fund Raising SMS Loans Fake companies VAT fraud Credit card fraud Mortgage fraud Selling stolen goods All Acts of Financial Crime

8 Challenges ISIS/Daesh Counter ISIS Finance Group formed March 2015 Prevent ISIS from using the international financial system, including unregulated money remitters FATF report in February 2015 identified financial institutions in or near ISIS controlled territory Air strikes to shut down oil trade - Tidal Wave II, October 2015 Direct/Indirect State Sponsorship Conflict Armament Research (CAR) report: Less than 2 weeks for weapons manufactured in E Europe intended for Syria ending up in Mosul!

9 Dr Afzal Ashraf 2017

10 Intelligence Forecast Crime & Terror Murders Criminal organizations and networks based in North America, Western Europe, China, Colombia, Japan, Mexico, Nigeria, and Russia will expand the scale and scope of their activities. They will form loose alliances with one another, with smaller criminal entrepreneurs, and with insurgent movements for specific operations. They will corrupt leaders of unstable, economically fragile, or failing states, insinuate themselves into troubled banks and businesses, and cooperate with insurgent political movements to control substantial geographic areas. "National Security in the Next Generation" Address by John C. Gannon Chairman, National Intelligence Council Dr Afzal Ashraf Iraq ISIS 2014 Mexico Gang 2013 Murders

11 What is financial crime and Money Laundering? Money laundering can be defined as the process through which illegal gains and their sources are made to appear legitimate. (Braithwaite and Drahos 2000) The handling of the proceeds of crime (drug dealing, theft, smuggling, trading counterfeit goods) Market manipulation (insider trading) Tax evasion Fraud AML also used for Sanctions Compliance

12 Regulatory Policy, Enforcement and Banking Compliance Bank Compliance Regulatory Policy Enforcement

13 Changing Regulatory Landscape During FSA guidance grew by 27%. Growing rules did not prevent problems caused by cultural weaknesses In 2013 FCA Finally focussed on the Boardroom changing long held perception that management of risks was a function of compliance and not responsibility of the business executives. There is a greater need for implementation and reporting by competent experts some of whom may not be be available in the bank (ie Consultants and auditing firms).

14 UK Trends Crimes Recorded by Police v CPS Data -Number of Convictions (April to March)` / / / Crimes Recorded Convictions

15 Law & Regulation vs Audit and Investigation Financial System Information Sharing Statute Regulation Dr Afzal Ashraf 2017

16 Money Flow in Laundering Cycle Predicate Crimes PLACEMENT LAYERING INTEGRATION Corruption and Bribery Fraud Organized crime Drug and human trafficking Environmental crime Terrorism Other serious crimes Initial introduction of criminal proceeds into the stream of commerce Most vulnerable stage of money laundering process Involves distancing money from its criminal source: movements of money into different accounts movements of money to different countries Detection Increasingly difficult Last stage in laundering process Occurs when laundered proceeds are distributed back to criminals Creates appearance of legitimate wealth. Banks, Brokerage firms Financial services, Insurance companies, Money remitters, etc

17 Countering Terrorist Finance (CFT) UN Security Council Resolution 1373 (2001) Financial Action Task Force (FATF) & G7 Counter Terrorism Action Group (CTAG) combat money laundering Egmont Group Financial Intelligence Units (FIU) share information and provide advice FATF core standards in 2012 emphasize riskbased approach

18 Elements of an Effective Counter Crime and Terrorism Finance Regime 1. Criminalize terrorist financing and money laundering LEGAL FRAMEWORK 2. Know Your Customer (KYC) and report suspicious transactions at banks FINANCIAL REGULATION 3. Collect, analyze, and disseminate suspicious transaction reports FINANCIAL INTELLIGENCE 4. Investigate and pursue terrorist financing and financial crimes LAW ENFORCEMENT 5. Prosecute terrorist financing crimes PROSECUTIONS

19 Detection and Monitoring Standard Chartered Bank, Saddle River Valley Bank and HSBC Bank etc were fined for failing to detect suspicious activity and failing to comply with the transaction monitoring of compliance, This demonstrates importance of monitoring, detection and reporting AML transaction monitoring is usually based on artificial intelligence software to detect unusual or suspicious activity When investigators find evidence of wrongdoing, a suspicious activity report (SAR) or suspicious transaction report (STR) is created and shared

20 Information Sharing Effective information sharing is an important aspect of a wellfunctioning AML/[CTF] framework which facilitates the detection and prevention of terrorist financing and money laundering. (FATF) Enhanced law enforcement through tough powers including unexplained wealth orders (UWO) Increase international reach. Promote more effective information sharing across international boundaries with partners to tackle money laundering and terrorist financing threats, and develop multilateral approaches Develop stronger partnership with private sector. Reform Suspicious Activity Reports (SARs) regime. Permanent Joint Money Laundering Intelligence Taskforce (JMLIT) Bringing together financial sector, law enforcement agencies and the Financial Conduct Authority to share information to prevent, detect and disrupt money laundering and terrorist financing activities. Statute Enforcement Action Information Sharing Regulation

21 Case Studies At one bank, a customer who was the subject of allegations of corruption was classified as low risk simply because he came from a low risk country. A small bank had introduced a system to score its customers but the risk scoring methodology meant it would be very unlikely for a customer to be given a high risk rating. Moreover, customer-facing staff at this bank did not understand how the risk score was generated and were confused about what score would make a customer high risk. FSA Banks 2011 Report management of high money-laundering risk situations.

22 Challenges Terrorist financing and non-terrorist Criminal AML frameworks financing are similar Uneven application of legislation Corruption Significant burden of compliance falls on private sector, NGOs and informal remittance systems Need for measures of effectiveness in CFT, not just technical compliance

23 Cyber, Social Media IT and Big Data Cyber A source of Crime and Manipulation and Detection Social Media and KYC Big Data, AI and intelligence Big returns on big investment in IT and training Can Easily Manipulate Suspicious Transaction Alerts / High Risk Individuals etc

24 Data, Information, Intelligence & Assessment Collection Process & Exploitation Analysis & Production Assessment & Decision Action B i g D a t a Dr Afzal Ashraf 2017

25 Questions? Afzal Ashraf