A banker’s update on terrorist financing and money laundering from the US Committee on Homeland Security

By Christine Duhaime | May 23rd, 2016

Summary of the Updates

The US House Committee on Homeland Security released a number of updates and received testimony on the status of terrorist financing, terrorism and money laundering in the last few weeks with some interesting developments relevant to banks in terms of changes in terrorist financing typologies that should be added to anti-money laundering and counter-terrorist financing risk assessments, wherever banks are situated, since the new information is globally relevant.

The updates and testimony before the Committee, if all accurate, mean that:

  1. Antiquities collectors in New York City are essentially engaged in the financing of terrorism (of ISIS specifically) and money laundering by virtue of the fact that they are buying antiquities stolen from Syria and Iraq that are trafficked by ISIS to New York. The proceeds of crime seem to involve collectors, auction houses, brokers, importers, agents of ISIS and ISIS itself. The plunder and trafficking of antiquities by ISIS is such a highly visible news item that collectors can’t possibly not know that the proceeds of crime from these antiquities purchases are used to finance ISIS.
  2. People in the West are essentially engaged in the financing of terrorism (of Al Nusra specifically) and money laundering by virtue of the fact that they are paying $40,000 to surgeons in Egypt, with a large and increasing portion of the proceeds of crime being paid to Al Nusra, for illegal kidney transplants using kidneys harvested from destitute Syrian refugees, who are paid no more than $2,000 for a kidney, often much less.
  3. Al Qaeda has $100 million chilling in bank accounts in Yemen.
  4. Syrians with terrorist connections, or who are terrorists, have attempted to enter the US through its immigration program, claiming to be Syrian refugees.

1. Terrorists have posed as fake Syrian refugees to attempt to enter US

According to the Committee’s latest assessment:

  • Terrorists have attempted to gain access to the US under its immigration program posing as fake Syrian refugees.
  • US law enforcement and intelligence officials lack the ability to vet and screen whether immigration applicants claiming to be Syrian refugees are real refugees or members, or former members, of a terrorist group in Syria (my note – no country has this capability because the Syrian government is not effectively operational – there is nothing to vet or screen against that is reliable in Syria).
  • Banks continue to onboard terrorist organizations and to provide banking services to them. For example, al Qaeda in Yemen has $100 million deposited in banks in Yemen at its disposal.
  • There are over 1,000 defectors to ISIS from the EU who have returned to the UK, France, Germany and Belgium. It is unclear whether they are incarcerated or have been charged, or are in the EU anonymously.
  • ISIS now has 8 official branches in other countries and there are 24 countries with active ISIS members engaged in terrorist financing including Philiipines, Pakistan, Russia, Yemen, Nigeria, Tunisia, Jordan, Libya, Indonesia, Bangaldesh, Algeria, Egypt, India and the Sudan.
  • ISIS controls 60 miles of the border with Turkey (my note – a concern for money transfers in the border towns of Turkey for terrorist financing) and its numbers in Libya doubled in the last year.

2. Looted antiquities from Syria and Iraq that finance ISIS are sold in New York

The illegal sale of stolen antiquities from Syria and Iraq for terrorist financing continues.

Based on documents obtained from the US Delta Force raid on ISIS’ financiers Abu Sayyaf (now dead) and his wife Umm Sayyaf  (in Iraq awaiting prosecution for, inter alia, her role as a human trafficker for ISIS for her role selling Yazidi children as sex slaves) in March 2015, it was learned that ISIS has a separate ‘Ministry’ to manage the looting and for the sale of antiquities illegally removed from Syria and Iraq. ISIS makes $5 million per year in the sales of antiquities to agents in Lebanon and Turkey, who then sell to individuals, art galleries and auction houses mostly in the US. The US is now the largest importer of stolen antiquities from Syria and Iraq trafficked by ISIS as a method of terrorist financing to western collectors. While regular trade with Syria has diminished with the US, imports of Syrian antiquities have apparently skyrocketed, all of it apparently coming into the US through the Port of New York.

In early May, according to testimony heard by the Committee, over $400 million was sold in antiquities during a New York antiquities festival called “Asia Week” and while there were hundreds of raids by law enforcement, only one person was prosecuted. The Committee noted that it would look at a dialogue with the Department of Justice and the FBI to revisit the issue, presumably, based on the Committee Q&A, with a view to looking at the banking transactions underlying the illegal sales  of stolen antiquities from war-torn Syria and Iraq and seeing whether banks are reporting the requisite suspicious and terrorist financing transactions, and following the money trail.

My note – the sale of looted antiquities from Syria and Iraq is low hanging fruit when it comes to identifying members of ISIS in charge of this aspect of their trade and identifying the foreign bank accounts and beneficial ownership structures used by ISIS. If there is an area where ISIS is financially vulnerable in terms of detection, this is it because this is one area where ISIS has to use bank accounts for international trade and commerce. It is also low hanging fruit for regulators to identify banks that may be non-compliant in the area of counter-terrorist financing in trade-based money laundering and terrorist financing on two fronts –  banks that bank terrorists and bank collectors buying stolen antiquities. These purchases are out-of-pattern, both by merchant code and dollar amount, and should be detectable in a nano-second by an AI system in a bank or charge card company monitored by the bank’s AML / CTF lawyers.

3. People in the West are paying terrorists indirectly to buy human organs harvested from refugees

A new way of terrorist financing involving refugees is by the sale of human organs.

According to testimony before the Committee, agents in Turkey work in refugee settlements to locate refugees willing to sell their kidneys. Once a refugee agrees to sell a kidney, the refugee is transported to Egypt for the operation and is then paid, and subsequently uses the money to pay human smugglers to travel to Europe. The refugee is paid about $2,000, often less. The price paid by the patient is $40,000. According to this news report, over 18,000 Syrian refugees have sold their organs. This practice is not new.

What is new, according to testimony before the Committee, is that Al Nusra uses the organ transplants as a form of terrorist financing. People from the West pay Al Nusra $40,000 to buy a kidney from Syrian refugees through travel agencies by depositing money directly into the bank accounts apparently accessible by Al Nusra in Europe, thereby avoiding the wiring of funds to terrorists which could be detected. Western organ buyers use medical travel agents because the doctors performing the operations in Egypt have the arrangements brokered through those travel agencies. It’s not clear how the doctors and hospitals are paid – presumably by Al Nusra.

My note – some of the testimony on the trafficking of refugee organs was odd. The expert testifying before the Committee did not identify the concerns as being the trafficking of human organs of refugees or terrorist financing but rather the concern was articulated as one that arose because “Al Nusra is intimidating the doctors who have traditionally performed the trade and are taking many of the profits out of this trade”. Honestly, does anyone care if the doctors performing such operations are earning less profit? Would anyone care if the mafia earned less profit from an illegal activity except the mafia? What we care about is that people from the West are financing terrorism by human organ transplants involving destitute refugees and that the practice is morally repugnant, illegal and unethical in those circumstances. We also care about the human rights violations and upholding the rule of law.

I suspect that the testimony in respect of Al Nusra receiving payments directly from organ buyers through travel agents is, with respect, incorrect – it is more likely that the doctors and hospitals are the ones who are paid in the EU from travel agents and that they in turn, pay Al Nusra in Egypt. It is terrorist financing either way, one more direct than the other, but in terms of banking risks, the points of entry to be cognizant of are wires from the EU and Dubai to Egyptian medical facilities in the range of $30,000 to $50,000 since they are high risk for terrorist financing of Al Nusra and involve, in addition to terrorist financing, money laundering, the predicate offense being the illegal trafficking of human organs.

4. Transnational Criminal Organizations & Beneficial Ownership

The Committee heard testimony from a sociologist that in Franco Europe (France, Belgium), law enforcement and intelligence agencies do not appreciate the connection between terrorist financing and transnational criminal organizations and apparently cannot “connect the dots.”

My note – With respect, I doubt the above statement is accurate, but nonetheless the testimony was that although we know that TCOs operate with terrorist groups, in Europe law enforcement and intelligence agencies seem to have missed that point. The reason I doubt this is accurate is because Europol has, for many years, been looking at that exact issue and published material on point. It is indeed well-known in counter-terrorism law that terrorist groups are closely aligned with, and often are, TCOs in their own right. For example, at the end of this article, the head of Frontex talks about this issue.

Much of TCO transactions are conducted through beneficial ownership structures. A large global concern at the moment is in respect of beneficial ownership but that concern is all geared towards identifying tax evaders and none of it directed towards terrorist financing.

Part of the testimony before the Committee, however, was tied to beneficial ownership. The testimony was that illicit trade, including trade conducted by terrorists, is “supported by banks, by law firms and by professional services firms (accountants)” in places such as the US who help mask it through contracts as “high level facilitators”.

Smuggling from Libya

The testimony before the Committee was interesting but was lacking the most critical security threat at the moment — the human smuggling operations from Libya by TCOs affiliated with ISIS, who are engaging in large volumes of terrorist financing and money laundering (more here), who will unfortunately manage to smuggle more terrorists into the West.

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