UK to outlaw insurance payments to terrorists for ransom and jail insurance executives for up to 14 years for terrorist financing on conviction

By Christine Duhaime | December 6th, 2014

Ransom payments illegal

In a promising and long-overdue move from Europe, the UK government’s proposed Counter-Terrorism and Security Bill 127 (the “Counter-Terrorism & Security Act“), now at Second Reading in the UK Parliament, will prohibit insurance companies from making ransom payments to terrorists and terrorist organizations.

The provision would amend §17, the counter-terrorism financing part of the UK Terrorism Act 2000, to make it an offence for an insurer to make a payment of money or any other property in response to a demand for terrorism if they know or suspect its in response to a ransom demand.

Moreover, the provision renders directors, managers, secretaries and officers of an insurance company guilty of the offence of terrorist financing if the insurance company is convicted of making a ransom payment for terrorism in cases where the executives or directors acted with neglect, or consented or connived in respect of the payment to the terrorist or terrorist organization.

14 year jail sentence

Officers and directors who are convicted are liable to a term of imprisonment of up to 14 years, to a fine, or both. If an executive is convicted, the amount paid to the terrorist organization or terrorist by the insurance company is subject to forfeiture by the executive personally.

Clarifies illegality of financing terrorists by ransom payments

The Counter-Terrorism & Security Act does not necessarily change the law in a material way. That is because counter-terrorism laws, and some sanctions laws and certainly international law generally already prohibit terrorist financing and make it a criminal offence to provide or receive money or other property (including insurance proceeds) knowing or suspecting that it will or may be used for the purposes of terrorism. Ransom payments to the Islamic State and al Qaeda in the past four years by insurance companies were prohibited by, inter alia, the Terrorism Act 2000 in the UK (and similar legislation in the many other countries including the US and Canada).

ISIS injuries to lead to endless litigation

If Americans begin to be injured by the activities of the Islamic State in the next few years, insures with any corporate foothold in the US may face endless personal injury class actions arising from ill-advised and what the UK government has called “illegal” ransom payments made to terrorists in the past.

These cases will be very interesting because no insurer’s executive can arguably testify that he or she unknowingly made a ransom payment for terrorism to a terrorist. The fact of the payment is proof of knowledge by the insurance company. And no insurance executive can arguably take the position, as reporting obliged entities under counter-terrorism laws globally, that he or she was unaware that the payment of money or other property to terrorists was a prohibited criminal activity. Besides which, every legal and natural person is deemed to know the law in any event.

Although it was foreseeable, it is regrettable that more people did not take into account the repercussions of terrorist financing derived from payments of ransom, namely that it would lead to the rise of the Islamic State, the countless deaths of innocent people, and the negative impacts on global economic growth.

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Capture of ISIS leader’s wife likely to reveal banks that bank ISIS & shows that Al Baghdadi is losing confidence

By Christine Duhaime | December 3rd, 2014

Lebanese media reported today that the leader of the Islamic State (“ISIS”), Abu Bakr al Baghdadi’s wife was arrested while attempting to immigrate to Lebanon. The woman, Saja Hamid al Dulaimi, was apparently arrested with one of their children using fake identification and is being held by Lebanese intelligence. In a CNN video report, US government officials appear to confirm the person is Dulaimi and is being subject to intelligence-gathering. However, soon after the news was released, ISIS people began Tweeting that the person in custody is not Dulaimi.

If the person is Dulaimi, her detention and interrogation will likely not yield much about al Baghdadi or ISIS, but her cellular phones (she likely has  2- 3),  will yield lots of crucial information. Things that intelligence will immediately look for on her cell phones will be details that connect her to banks, properties owned by ISIS in Lebanon and elsewhere, and individuals with whom she is connected. Likely every text and call in her cell phone records will be traced back to the owners to identify and capture other ISIS sympathizers.

No doubt her cellular phone and other records will also be scraped for evidence of institutional terrorist financing (the banks who are banking ISIS’ leaders). Politically exposed persons (“PEP”) like al Baghdadi, take great pains to remove large amounts of proceeds of their crimes to safer countries and usually in the hands of wives, girlfriends and children to avoid detection. The politically exposed person regime is designed to prevent this from happening by deeming a person like Dulaimi a PEP as well and therefore, un-bankable because such a person could not satisfactorily prove how she acquired any wealth from Syria. As we know, the PEP regime, like counter-terrorism law, is not working in respect of ISIS. Once the banks that provide services to ISIS and its PEPs are sussed out from records Dulaimi is carrying, it will lead to the identification of other accounts of terrorists because they tend to bank at the same places.

It is possible, but unlikely, that Dulaimi was smart enough to cross into Lebanon without multiple cellular phones so that no traces to ISIS or their bankers could be made, however, if that were the case, intelligence agents would have let her pass through and monitored her once she was in Lebanon instead.

One of the things the departure of Dulaimi from the Islamic State proves, if it is her, is that al Baghdadi is uncertain about the future of the viability of the Islamic State, otherwise he would not have forced his wife to leave with one of their children and to have risked her captivity.

Dulaimi was incarcerated in the past and was part of a prisoner swap on March 10, 2014 – in this video you can see the swap taking place. Notice the expensive clothing she is wearing and the imported purse she is holding, which would be unusual for a normal person being released from prison.

Background on Dulaimi is here.

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Credit union fined over anti-money laundering controls of its money services business clients

By Christine Duhaime | December 1st, 2014

The question every credit union has been asking for the past five years – namely, do we have anti-money laundering law obligations over the financial transactions of business clients that are money services businesses (“MSB“) – was just answered by FinCEN with a $300,000 fine.

Last week, FinCEN assessed the fine against the North Dade Community Development Federal Credit Union for violations of the Bank Secrecy Act and USA Patriot Act which exposed the US financial system to significant risks of money laundering and terrorist financing from high-risk countries in the Middle East and Central America.

The Credit Union onboarded as a client, a MSB that itself was a financial services provider to 56 other MSBs in high risk jurisdictions. The 56 MSBs were not members or shareholders of the Credit Union. In 2013, the Credit Union, which only had five employees, processed almost $2 billion in financial transactions for the MSBs and in the process failed to comply with its anti-money laundering and counter terrorist-financing obligations over the MSBs in respect of client verification, filing reports, reporting suspicious transactions, undertaking risk assessments in respect of the MSB business line, and to have controls in place to mitigate the risks associated with the MSB business line.

The Wall Street Journal noted that law enforcement has seen an increase in MSBs and other clients moving to smaller financial institutions as larger banks de-risk and terminate sectors of clients that they have determined are high risk. It also noted a FBI report that illicit funds are moving to credit unions and a warning from bigger banks for credit unions to take extra precautions when banking MSBs.

FinCEN seems to be signaling that credit unions must monitor their MSB clients pursuant to their own controls and need to be engaged with, and operate their own processes and procedures internally for MSB compliance, rather than contracting out compliance reviews.

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The Chinese Way – the impact of China’s anti-corruption campaign on trade-based money laundering and Macau casinos

By Christine Duhaime | November 29th, 2014

Money Laundering Bulletin in the UK has a good article out today on the anti-corruption drive in China and its impact on the casinos in Macau, which explores the anti-money laundering lapses and lack of legislation in the gambling industry in Macau, and the corresponding increase of trade-based money laundering in China.

Trade-based money laundering

According to the article, as a result of the diminishing gambling revenues in Macau, Chinese foreign nationals are increasingly turning to trade-based money laundering in China to remove funds from the country.

The article notes that last month, the government of China discovered that companies in China have “faked, forged and illegally re-used” documents for imports and exports on a wide scale and there is an investigation ongoing with a view to prosecuting the companies and their executives involved.

Because of the prospect of lucrative bribes, the article notes that one of the most sought-after positions in China is as a border guard at the Hong Kong-Shenzhen border. Border guards at that location will, for a fee, adjust the price of iPhones in a container upwards or downwards depending upon the request, notes the article, to either half price or double the price.

The article quotes an analyst describing the revival of the ancient practice of “mayo banjia” (meaning ants moving a house) where many people move funds across the border instead of one person as the new, old way of money laundering across the Hong Kong and Macau borders. The analyst says that rather than giving one person a bag of gold to smuggle, 1,000 people each smuggle a bag of gold bracelets.

Less money moving to Macau from China

According to an organized crime specialist in China quoted in the article, money supply is tightening in China and officials are having difficulty exporting funds from China to gamble in Macau. In order to internationalize the Yuan, President Xi is apparently controlling the laundering of funds out of China.

We are quoted in the article as saying that supervision and oversight of casinos in Macau in terms of anti-money laundering (“AML”) law compliance is not as stringent as in mature gambling markets and that Macau’s standards for AML fall short compared to global standards with respect to junket operators who manage the VIP Rooms, which account for 75% of the gambling revenues in Macau.

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Another Australian Bank De-Risks and Exits Remittance Business Over Terrorist Financing Regulatory Risks; Financial Inclusion and Shadow Banking Seen As Repercussion

By Christine Duhaime | November 20th, 2014

Fourth banks closes remittances businesses

Another bank in Australia, the Westpac Bank, has announced it will close its remittance business division next week over the impossibility of complying with counter-terrorism laws. By de-risking and closing its remittance division, the Bank is terminating the bank accounts of all of its business customers who operate money services businesses.

Westpac is the fourth major bank in that country to withdraw from remittances over reputational concerns and business risks. Those risks are mounting exponentially in the face of the realization that the civil and regulatory liability facing banks has the potential to bankrupt them (as a result, in part, of the Arab Bank case) for current and historical cases in which they participated in the funding terrorism by processing transactions that benefitted terrorist groups or persons, knowingly or not, or as a correspondent bank or otherwise.

Annually, 80 million remittances are sent from Australia worth approximately $30 billion and most of it goes to families in Asia and the Pacific region.  In the remittance business, banks in Australia, Canada and elsewhere provide services to money services businesses (MSB) who deal with the clients directly. Then, larger banks, usually a correspondent bank, process transactions on behalf of the localized banks. In the money services business regime, banks must not only know their clients, but the clients of the MSB as well.

ISIS making banks more cautious

Banks are becoming more concerned with banking MSBs, even those that are regulated and subject to anti-money laundering laws, and correspondent banks are typically refusing to bank the accounts that they know come from MSBs because of the fear of terrorist financing involving the Islamic State. As the violence generated by the Islamic State spreads and as their sympathizers grow in number, all banks become more exposed and face greater risks by operation of anti-money laundering laws (its counter-terrorist financing component) and sanctions laws.

The remittance association in Australia noted that if another bank de-risks an entire sector of remittances, the movement of funds will move to shadow remittances, potentially causing more of a terrorist financing threat to national security and worsening the financial inclusion problem.

My opinion

This is my opinion only but in my view, global counter-terrorist financing laws and the politically exposed person regime in anti-money laundering laws are both incapable of being complied with as a matter of law and are therefore void ab initio - it would be less expensive by hundreds of billions of dollars in avoided fines and jury awards and loss of business revenues if a few global banks challenged the legislation instead of de-risking, a side benefit of which would be the inclusion of more persons financially excluded from the formal banking system.

You can read the original article on the Westpac Bank here.

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Is the ATM Global Network Unwittingly Used for Terrorist Financing?

By Christine Duhaime | November 19th, 2014

We’re pleased to announce that we’re giving a presentation on the topical issue of “How the ATM Network Globally is Unwittingly Used for Terrorist Financing & Ways to Prevent it” at the 2015 Interac Conference in Ottawa.

After a spouse of a member of the Islamic State Tweeted to the world from ar-Raqqah, Syria, about accessing the ATM network to finance their activities, financial institutions have become more concerned about how and where the debit and credit cards they issue are being used, and by whom, especially in the wake of the Arab Bank case. We will discuss those issues and more at the Interac session in April 2015.

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Seminar on Terrorism Risks in Canada & Stopping Funding of Terrorism

By Christine Duhaime | November 19th, 2014

On behalf of the Association of Certified Anti-Money Laundering Specialists in Canada, we’re pleased to announce a wine & cheese on the important topic of understanding terrorist threats in Canada and ways to stop terrorist funding on December 3, 2014 in Vancouver.

The session is aimed at providing guidance to financial institutions, money services businesses, insurance companies, casinos, brokers, electronic and other payment processors and digital financial services.

The 2 hour session will be led by a counter terrorism specialist from the RCMP with a wide range of expertise in this area in Canada and in other countries.

The session will be held at the Terminal City Club at 4:00pm. Registration is available here and space is limited.

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UK keeps its promise to jail officers for non-compliance with money laundering laws – likely world’s first incarceration over AML/CTF regulatory compliance failures

By Christine Duhaime | November 17th, 2014

In what may be a world first, a UK Court has jailed the officer and owner of a money services business essentially for failing to comply with regulatory requirements for anti-money laundering and counter-terrorist financing.

Paramjit Singh Sangha, who operated a money services business called PS Gold Exchange in England, failed to comply with the Money Laundering Regulations in the transfer of £400,000 to India on behalf of clients. The HM Revenue & Customs agency discovered that Mr. Sangha failed to verify the identity of his customers, failed to keep AML/CTF records and did not train staff at the money services business on how to detect suspicious transactions. For that he was charged in October 2013, and subsequently pleaded guilty to four charges of violating the Money Laundering Regulations. He was incarcerated for a term of 12 months on Friday.

In August, the HMRC revised its money services guidance to make officers personally liable for anti-money laundering compliance failures.

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Court in Canada says despite notice of surveillance, violent offender has expectation of privacy over texts in public casino

By Christine Duhaime | November 14th, 2014

Expectation of privacy

In an odd decision out of Canada, a provincial level Supreme Court has ruled that a violent offender gambling at a public casino has an expectation of privacy when using his cellular phone to text despite the fact that gamblers are notified of being under surveillance when entering casinos.

The decision may undermine the ability of casinos and law enforcement to detect and prevent not just financial crimes but serious non-financial crimes, and their ability to comply with gambling legislation and anti-money laundering and counter-terrorist financing laws when gamblers (including violent offenders) are on the premises.

The Court also held, as an aside, that an unsent text on a cellular phone is a communication because it is about to be sent and about to enter the transmission stream, effectively opening the door to the argument that an unsent communication is now a communication in Canada. That determination has almost unimaginable repercussions in criminal law, for example at the extreme end, it appears to mean that a person texting a death threat (let’s say) that they never send may be nonetheless convicted of communicating that threat because the text was on their phone “about to be sent” and enter the transmission stream. In other words, a draft text or email that is never sent is sufficient to establish a factual communication.

Integrity of gaming

Casinos in Canada are conducted and managed by the government and they are required, pursuant to the Gaming Control Act, to ensure the integrity of all aspects of gambling. As part of the requirement to preserve integrity, casinos must take action to monitor gamblers on the premises 24/7 to ensure they are not engaging in criminal conduct (such as loan sharking) and to detect and report suspected money laundering and terrorist financing offenses.

In addition to ensuring the integrity of the gaming industry, casinos have a duty to ensure the safety of their employees and of gamblers. One of the ways in which they do this is by the use of video surveillance.

PTZ cameras

Since the TV series CSI and a host of casino-related movies, the whole world knows that casinos use PTZ cameras that can capture minute details of activities from the ceilings 30 feet above. The Gaming Control Act and gaming policy require that casinos monitor and remove gang members and other violent offenders from gaming premises. Often, the PTZ usage is what alerts them to the fact that a person is on site that will affect the integrity of gaming. PTZs are now used for many other businesses from retail stores, infrastructure and banks.

Facts

The judgment is not particularly clear, partially because the Judge said he would not take a technical approach to the law in some of his analysis, but the facts of the case seem to be as follows:

In June 2012, Dean Michael Wiwchar was arrested and charged with the first-degree murder of John Raposo in Toronto. Six months earlier, a man was murdered at the Wall Centre Hotel in Vancouver and police apparently suspected Wiwchar of having committed, or having been involved in, that murder. In the course of their investigation, the Vancouver Police located 16 guns and ammunition at two of Wiwchar’s apartments in Greater Vancouver. After the arms were located in the ostensible possession of Wiwchar, the police began surveilling him.

In March 2012, Wiwchar gambled at the Edgewater Casino in Vancouver. The police followed him into the casino. While on the premises, he used his cellular phone to send and receive text messages. The police went to the casino surveillance room to monitor Wiwchar on PTZ cameras. They directed casino surveillance personnel to zoom in to read Wiwchar’s texts and to screen capture the messages. In particular, they obtained screen shots of texts that Wiwchar was composing, or had composed, but had not yet sent. The police did not have a warrant.

Four days later, the police obtained the video footage and screen captures of the incident above involving Wiwchar from the Edgewater Casino with a court order.

Violent history

Wiwchar was subsequently charged with arms-related offenses in British Columbia and murder-related charges in Ontario. According to his parole record he, inter alia, is a violent offender; threatened to kill correctional officers; once deliberately flooded his prison cell; slashed a man in a home “from his ear to his lip”; beat victims he was robbing with a baseball bat; and stabbed a person.

After he was charged in British Columbia, Wiwchar’s lawyer moved to have the casino text messages excluded as evidence on the basis that they were illegally obtained by violating Wiwchar’s right not to be subject to an unreasonable search and seizure under §8 of the Charter of Rights and Freedoms. His lawyer argued that Wiwchar had a reasonable expectation of privacy in the casino vis a vis the content of his text messages.

The Crown argued that no one can have a reasonable expectation of privacy in a casino and further, as we all know, the texts were not private because anyone sitting beside us can see and read our texts when they arrive if one’s cellular phone screen is visible and watch as you compose texts.  Wiwchar’s texting was obviously fairly visible because the surveillance staff were able to zoom in to read the messages for several hours. A PTZ camera does not have x-ray capabilities and cannot record anything other than objects and people that are in plain and public view.

The Court said that based on the evidence presented to it, the primary purpose of video surveillance at casinos is to detect cheating. That is not completely inaccurate and minimizes the role and purpose of video surveillance. The primary purpose of video surveillance at casinos conducted and managed by government agencies, as mentioned earlier, is to ensure the integrity of the gambling sector and ensure the safety of persons at casinos as required by the Gaming Control Act, including to detect and report financial and other crimes as required pursuant to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, §86 of the Gaming Control Act, and pursuant to several sanctions laws in effect in Canada.

According to the judgment, the Court appears not to have considered whether the alleged infringement was justifiable under §1 of the Charter of Rights and Freedoms, and as a result, that whole requisite analysis is absent. The Court also appears not to have considered the Gaming Control Act as the basis for authority to undertake video surveillance.

A Communication now includes texts not sent

Most oddly, it took the position that viewing a violent offender’s texts using PTZ cameras at a casino is an “interception” of a communication. With respect to solely the interception issue, PTZ cameras at casinos are no different than similar passive cameras at street intersections, toll bridges, or shopping centres that record license plates or other activities that are used as evidence.  If the latter are not illegal interceptions, it’s hard to see how the former is just because its in a casino. All that a PTZ camera does is zoom in to an object or a person in a pubic place for surveillance or a picture to record that which is in plain and public sight.

The Court held that a PTZ screen capture of a composed draft text chilling on a cellular phone before it is sent to the intended recipient (before you push the send button) is an interception of a communication because it was acquired in the course of the communication process, which it held meant a text that was “about to be sent” and enter the transmission stream.

This seems to mean that a draft email, text or social media post that is composed on a device or a computer and “about to be sent” is now a communication for the purposes of the Criminal Code irrespective of whether it is in fact sent. In other words, a non-communication in a text message format is now a communication. Does this mean a person can be convicted of an illegal communication in a text message that is never communicated? In Canada, notwithstanding the Charter of Rights and Freedoms and notwithstanding that such a communication is never actually communicated, it would arguably appear to be the case.

Conclusion

In the result, the Court held that a violent offender in a public place does not abandon his right to privacy with respect to his text messages and that the police violated Wiwchar’s expectation of privacy by reading the text messages on the PTZ cameras. That evidence was ordered excluded from Wiwchar’s trial.

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Islamic State creating its own currency – may it consider digital currency next?

By Christine Duhaime | November 13th, 2014

Updated on December 3, 2014 with news of ISIS tweeting supporters to buy “ISIS currency” and a few sellers of Bitcoin are advertising sales to Syria

The Islamic State (ISIS) has issued a statement by its “treasury house” that it is issuing its own currency as the next step in its move to statehood. The currency will be represented by gold, silver and copper coins only and its use will be mandated by the Islamic State in the territories in which it controls. The statement and drawings of the coins are available on social media platforms operated by ISIS.

Separate social media accounts of ISIS terrorists: (a) show a picture of the coin in gold held in someone’s hand (although it may be Photoshopped): and (b) state that the coins are already in existence. In an EU social media Q&A platform, a British ISIS terrorist in Syria wrote that the ISIS currency is being used now. If that’s the case, its likely only marginally used at this point.

ISIS calls other currencies issued by governments a tyrannic monetary system that contributes to poverty and said that issuing its own currency would emancipate it from the global economic system. Apparently, ISIS has experts that have advised it on circumventing the global monetary system and how to create its own monetary system.

As we have noted elsewhere, ISIS has been exceptionally capable at convincing global and local financial institutions to violate counter-terrorist financing, anti-money laundering and sanctions laws by being able to maintain banking relationships from Syria and Iraq, tap into the ATM system unimpeded, collect ransom payments, buy uniforms and military equipment, sell petroleum products, set up businesses from Ankara, buy houses in Ankara and traffic humans from Turkey to the Gulf States.

Eventually, financial institutions that facilitated terrorist financing in respect of ISIS will be prosecuted by US regulators who have jurisdiction by virtue of correspondent accounts, or sued civilly in the US by victims of terrorism, but that will take years and in the meantime terrorist financing appears to be continuing.

Indeed, on Twitter, which appears to be ISIS’ preferred communication tool, their people began encouraging sympathizers and terrorist financiers to buy ISIS’ currency, tweeting: “If your rich, whats holding [you back] from buying ISIS gold or do you think its just a currency? It might be a way to support [us].”

The problem with issuing coins is that they are heavy, bulky, x-rayable and difficult to export or exchange beyond the borders of ISIS controlled territory. Given the technological and intellectual investment ISIS has made to adopt its own monetary policy, now with a new centrally controlled state-issued currency, will it also move to create its own centralized digital currency? It may be possible. The recognition by ISIS of the annexation as “provinces” of land purportedly controlled by ISIS-sympathetic groups in Saudi Arabia, Yemen, Algeria, Libya, and Sinai raises another interesting question of how one develops a currency for a medium of exchange and use internationally and in secret.

Digital currencies are a technology wonder but they are also the world’s most perfect tool for transferring value quickly, anonymously and internationally in a way that escapes regulatory detection and oversight. For a terrorist organization to create its own currency that it forces others to use, and in a digital form, may unfortunately be the best formula for terrorist financing imaginable.

The US Treasury has said that there is no evidence that any digital currency has ever been used for terrorist financing. However, we came across five sellers and buyers of Bitcoin as of the date of this article offering services to Syria purportedly from the US, Brazil and Russia accepting payments using our banks (two Canadian owned banks) and one popular online payment system.

Ideologically speaking, issuing digital currency, like Bitoin, may appear to be inconstant with ISIS’ move backwards in time to the 8th Century. However, as we have seen with their use of social media, cellular phones, electricity, vehicles, and weapons, ISIS only makes symbolic moves backwards. If a coin-based historical currency is too impractical for trade and commerce, or to obtain financing from the exterior, it is not inconceivable that they may move to a digital platform as global banks start to shut them out of the financial system.

How unfortunate would it be for the legacy of Bitcoin if the first so-called ‘state’ issued central digital currency was from ISIS.

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