IPT Testifies on Trends in Terror Financing
September 30, 2010
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Although the United States and its allies have closed off the formal financial sector to terrorist money, fighting the "evolving threat of terrorist financing" needs amended regulations and expanded enforcement, witnesses told a House subcommittee Tuesday.
The witnesses, including the IPT's Stephen I. Landman, focused much of their testimony before the
House Financial Services Subcommittee on Oversight and Investigations on the abuse of the formal financial sector. Besides Landman, the witnesses were Victor D. Comras, Special Counsel to The Eren Law Firm; Eric L. Lewis, a partner with Baach Robinson Lewis; and David Caruso, CEO of Dominion Advisory Group.
All witnesses agreed the banking industry is on the front lines in countering terrorist financing. "Through a combination of criminal prosecution, regulatory enforcement, and civil litigation, traditional banking methods are no longer open to terrorist dollars," Landman said. But as the witnesses would go on to explain, while the system is generally secure, more can be done.
Caruso and Landman both proposed efforts to ease banks' burdens to comply with current regulations while also making reports more useful to investigators. For example, Landman said, law enforcement officials provide classified briefings to compliance officers to help them better understand the threat and focus their resources. Caruso suggested re-examining the ways in which banks report suspicious activities. In particular, he urged Congress to consider a revised, more streamlined version of "Suspicious Activity Reports" (SARs). This new form would be completed if there was evidence that a customer was attempting to evade Currency Transaction Reporting requirements by "structuring" their transactions.
"Such a SAR would still provide the government with needed information and would reduce the time and effort needed by institutions to complete the form, thus enabling more energy to be directed at uncovering terrorist financing and significant money laundering," Caruso said.
While agreeing that the American banking sector has done tremendous work in countering terrorist financing, Comras highlighted a substantial gap in current terrorist financing programs:
"U.S. banks are intricately networked into an international banking system that has not yet fully come to terms with halting terrorism financing. And, while we have made great strides in cutting off the flow of money to terrorism from the United States, our banks remain awkwardly vulnerable to getting caught up in handling terrorist-group related transactions that originate overseas. This is because US banks must rely so heavily on the veracity and accuracy of the transactional information provided to them by their overseas clients and associates."
Discussing the threat posed by foreign institutions, Comras identified Arab Bank and Doha Bank, both of which were recently fined for funneling millions of dollars to suspected terrorists and terrorist groups throughout the Middle East.
In order to resolve this weakness, Comras suggested putting increased pressure on foreign countries, particularly those in Europe and the Middle East, to ban support to all terrorist groups. As Comras explained:
"Only a limited number of countries have joined with us in designating such organizations as Hamas and Hezbollah as terrorist organizations. This includes, for the most part, our European friends and allies. Yet, some European countries still exempt the political and humanitarian wings of these organizastions from such designation. Many other countries have not even gone that far and openly permit their financial institutions to process transactions in Hamas' and Hizballah's favor."
If banks don't comply, Landman said, the "material support" law could be changed to ensure that victims of terrorism can continue to hold liable banks that provide financial support to designated terrorist groups.
Indeed, greater cooperation will be needed between the international community and American financial institutions. As an example of what can happen when banks don't cooperatied, Lewis discussed an ongoing investigation into an alleged fraud committed by a Saudi named Maan al-Sanea. According to Lewis, al-Sanea moved at least $1 trillion dollars through New York bank accounts as part of a $20 billion fraud. And while the transactions should have raised numerous red flags, Lewis explained, "there appear to have been no questions asked—not by banks, not by regulators, not by prosecutors—until the whole scheme collapsed."
The hearing came a day after the Department of the Treasury announced a new proposal that would expand reporting requirements for banks to include all electronic money transfers into and out of the country. Under the current policy, banks are only required to report transactions in excess of $10,000 and others they deem suspicious. Announcing the proposed rule, FinCEN Director James H. Freis Jr, explained:
"by establishing a centralized database, this regulatory plan will greatly assist law enforcement in detecting and ferreting out transnational organized crime, multinational drug cartels, terrorist financing, and international tax evasion."
Some critics, such as Marc Rotenberg, executive director of the Electronic Privacy Information Center, have claimed the rule will be a major burden to banks and will bury investigators under mountains of new reporting. But if Treasury can figure out a way to streamline the procedure, it is the type of smarter regulations that would benefit terror-finance investigators.