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.

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.

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.

US veterans file billion dollar claims against global banks over terrorist financing and sanctions avoidance and claim that the conduct continues today

By Christine Duhaime | November 11th, 2014

Anti-Terrorism Act filing against global banks

Yesterday, symbolically the day before Remembrance Day, several plaintiffs filed suit against a number of global foreign banks based in the United States under the Anti-Terrorism Act (the “ATA“), including HSBC Holdings Plc, Barclays, Standard Chartered Bank and the Royal Bank of Scotland. The plaintiffs are seeking damages that could run in the billions of dollars for alleged acts of terrorism committed by the defendants in Iran and Iraq. The case is Freeman v. HSBC et al. and was filed in New York.

Financial support allegations

The allegations are not specifically that the banks committed direct acts of terrorism; rather that they provided financial support to listed terrorist groups in violation of sanctions laws and counter-terrorist financing laws which were a significant factor in the chain of events that led to the kidnapping and subsequent death and injury of American soldiers in Iraq from 2004 to 20011. In short, the allegations are that but for the alleged provision of financial services to Iranian entities in violation of sanctions law, terrorists would not have been capable of committing acts of terrorism that harmed the plaintiffs.

Allegations that conduct is continuing

According to the complaint, starting in 1987 and continuing today, the defendants are alleged to be conspiring with Iran to alter, falsify or omit information from payment messages (known as “stripping”) that involve Iran or Iranians to ensure the payments are shielded from detection, scrutiny or monitoring by each of law enforcement, regulators and other depository institutions in the US.

In addition to stripping, the plaintiffs are alleged to be converting MT103 SWIFT codes into MT202 SWIFT codes allegedly so that the transmitting bank does not have to disclose the originator, beneficiary and counter-parties of the financial transactions to disassociate the transactions from Iran for sanctions avoidance.

Billions allegedly transferred to Iran

As a result of the  alleged conspiracy, it is alleged that Iran was able to transfer billions of dollars in US currency through the US; transfer to terrorist organizations, millions of dollars used in terrorist acts; and acquire weapons of mass destruction. The funds allegedly enabled terrorist groups to commit acts of international terrorism that caused the death or injuries of the plaintiffs. From 2002 to 2006, at least $100 million allegedly was provided to terrorists through the Bank Melli and $50 million was provided to Hezbollah.

Other banks in the line of fire

The complaint also alleges that other banks aided, and aid, the defendants in the conspiracy to evade US sanctions and they are named as John Doe Banks because through the discovery process of the litigation, their identity will be revealed as financial transactions are traced to Iran.

Such alleged conduct by the alleged defendants are, if proven, acts of terrorism and terrorist financing pursuant to 18 USC §§2331, 2339A, 2339B and 2332d and if proven, will render the defendants liable civilly pursuant to 18 USC 2333(a) of the ATA.

Canada introduces anticipated Protection of Canada From Terrorists Act

By Christine Duhaime | October 27th, 2014

New Anti-Terrorism Measures

The Government of Canada released its proposed new anti-terrorism legislation today, entitled the Protection of Canada From Terrorists Act, Bill C-44 (the “PCFT“). The material part of the PCTF amends the Canadian Security Intelligence Service Act and is quite short. It does as follows:

  1. Clarifies that the Canadian Security Intelligence Service (“CSIS“) has the jurisdiction to perform its duties outside of Canada.
  2. Clarifies that CSIS may conduct investigations outside of Canada. The CSIS Act requires that CSIS collect, investigate, analyze and retain intelligence on activities if there are reasonable grounds to suspect that the activities may constitute threats to the security of Canada. It is important to note both that pursuant to the CSIS Act, CSIS must undertake these activities by law (namely, it must investigate all activities that may pose a security threat) and that the obligation arises if there is a possibility of a threat to the security of Canada – so, not if there is a threat but rather if there may be one - “may” being the operative word.
  3. With respect to (1) and (2), above, it is important to note that CSIS had this power already under the CSIS Act by virtue of its ability to enter into arrangements with foreign governments and foreign institutions, (and domestic ones) to do exactly that under the CSIS Act. The power to enter into foreign arrangements for CSIS to undertake its duties is permissive, however, suggesting that it is not required to have such agreements to undertake its duties overseas, otherwise the CSIS Act would have articulated that it must enter into such arrangements to undertake its duties overseas.
  4. With respect to (1) and (2), above, it is also important to note that CSIS has the legislative competence to assess security threats to Canada that (not within Canada) are foreign-influenced activities that are detrimental to Canada’s interests. It’s not possible to undertake that security assessment within Canada and before the Internet when the CSIS Act was brought into force, was certainly not possible thus the Legislature logically intended overseas activities. To suggest otherwise is inconsistent with basic statutory interpretation law.
  5. Makes it an offence to disclose the identity of a person providing assistance to CSIS for the purposes of a covert operation, or a potential one. That obviously is to protect the lives of informants in respect of terrorism.
  6. Requires that the identity of persons who provide information to CSIS be kept confidential for their protection and to remove inhibitions for the provision of that information. Even judges are required by law not to disclose the identity of informants and are subject to the offence provisions for doing so.
  7. Authorizes a Canadian Court to issue a warrant for enforcement outside of Canada to enable CSIS to conduct requisite investigations in cases where it may need to compel evidence. The enforceability of Canadian warrants exterior to Canada is not to be automatically assumed – such enforcement will depend upon the receiving jurisdiction and reciprocal agreements in place.

Canada to adopt terrorism law to spy on homegrown terrorists – will it be challenged?

By Christine Duhaime | October 16th, 2014

New proposed terrorism surveillance law

The government of Canada will announce proposed legislation tomorrow to increase its counter-terrorism measures in response to the national security threats from the Islamic State.

The proposed law will give more power to CSIS agents in Canada to detect and track persons associated with, or suspected to be associated with, terrorism. According to the government, the new bill will:

  1. Allow CSIS to obtain information on Canadians fighting abroad with terrorist groups, including to obtain from and share information with the US, the UK, Australia and New Zealand.
  2. Let CSIS track Canadians engaging in terrorist activities overseas.
  3. Authorize the sharing of information in respect of suspected terrorists with the US, Australia, New Zealand, and the UK with a view to tracking and reporting the activities of suspected terrorists among this group of nations.
  4. Give CSIS informants protection from disclosure in the same way we give such protection to police informants.

The government is also, at a later stage, implementing laws to deal with homegrown terrorists in order to be able to surveil them more and to prevent their return to Canada if they leave. Austria has already taken such steps and will not permit the return to Austria of a number of teen-ISIS brides.

NSA – type of surveillance legal and necessary for terrorism says US Court

With respect to spying on Canadians, there are concerns with striking the right balance between infringing civil rights and protecting our national security. The Charter of Rights and Freedoms in Canada guarantees freedom of association and expression, and the right not to be unreasonably searched or have property seized. National security level surveillance of terrorists and those associated with them will trigger discussions in this country on the nexus of these competing interests.

Courts in the US have ruled that the NSA program is legal and necessary to counter the threat of terrorism. The NSA collects telecommunications records including our telephone call records, texts, emails, photos and social media entries and categorizes them to create “rich profiles” of us when the information is culled. A number of NSA surveillance news stories speak to the effectiveness of the NSA program not only because the program successfully stops terrorists but also because the program may be used for purposes other than for counter-terrorist efforts.

In that case, the American Civil Liberties Union challenged the NSA surveillance program arguing that it exceeded the authority of the US Patriot Act of 2001 and violated the 1st and 4th Amendments of the US Constitution.

The Court noted that the US Constitution is not a suicide pact and the right to be free from search, seizure (and surveillance) is not absolute. It also noted that liberty and security can be reconciled within the law without having to choose among them because terrorist activities imperil civil liberties.

Islamic State – ISIS funded by sales of oil, captured women and taxes Christians must pay to stay alive; and how banks are used to finance terrorism

By Christine Duhaime | September 29th, 2014

Terrorist groups are not a financial island

This article has been updated and replaced with the White Paper on ISIS’ Terrorist Financing available here.

Crystal ball theory of liability – How banks became liable for terrorist acts of their non-listed customers

By Christine Duhaime | September 25th, 2014

Arab Bank case changes anti-money laundering law

In a weird twist of law, our global anti-money laundering laws that were designed to bankrupt terrorist organizations, and prevent the flow of illicit funds, may bankrupt many of our banks instead.

Early this week, in Linde v. Arab Bank, the Arab Bank was found liable in a civil proceeding in US Federal Court for providing banking services to terrorists and terrorist groups, and faces a jury award potentially in the hundreds of billions of dollars in triple damages.

Precedent setting case

The case is precedent-setting because it is the first case where a bank was found liable for supporting terrorism by acting as a bank, namely providing banking services.

More importantly, this is the first case where a bank was held liable for providing banking services to persons who were unlisted or undesignated terrorist organizations or persons.

In this case, the Arab Bank, among other things, processed wire transactions and provided banking services to, inter alia, 12 charities that were not listed or designed as terrorist organizations in the US, or by the UN or EU. Some of the charities paid out a type of life insurance policy payment to the families of martyrs injured or killed in terrorist attacks they committed (such as suicide bombers). The payments came from the US and other countries and were wired halfway across the globe where they were received by the charities.

The verdict has wide-reaching repercussions because it makes foreign banks in the US (or Canada) liable for the terrorist acts of their customers that bank at a branch location halfway around the world.

Banking can contribute to death or injuries in tort

Lawyers will no doubt be wondering how a causal connection was established in tort to tie banking services to personal injuries sustained in order to find liability. In other words, how can wiring funds to another continent cause a person’s death by a terrorist organization? The answer is that the jury was instructed that liability could be found in tort if there was proof that banking services were a substantial contributor to the plaintiffs’ reasonably foreseeable injuries from terrorism. The jury affirmatively found that banking an undesignated terrorist organization, or a terrorist person, can substantially contribute to foreseeable injuries.

Banks need a crystal ball to comply with counter-terrorism law

It may sound reasonable but it is not. Here’s why. At the material time of a wire transaction, the foreign bank in the US (or Canada) does not know the customer in another continent is a terrorist organization or person because the customer is unlisted. Even the government, with its greater intelligence resources (with access to NSA for example), does not know that the customer is a terrorist person or organization, or has such a propensity. If it did, the person or entity would be listed. So then how can bank executives possibly possess that knowledge in order to foresee that banking that unlisted customer will lead to a terrorist act which would lead to injury? They can’t. Unless they have a crystal ball.

And yet, the decision places limitless liability on banks because they do not have a crystal ball to be able to foresee (foretell in this analogy) which among their unlisted customers will cause an act of terrorism that will harm innocent people.

Banks may be liable in the billions of dollars for not knowing that which they cannot know. But not all banks, just foreign banks in the US or in Canada which has substantially similar legislation. And not just banks – any foreign entity providing designated financial services in the US is exposed including private equity funds.

The way anti-money laundering law works on the counter-terrorist financing side is that a government agency (such as OFAC) identifies certain persons or groups as terrorists based on intelligence and after a due diligence process, designates those persons or groups on public lists in respect of which financial and other transactions are strictly prohibited. Banks establish compliance regimes to ensure that services are not provided to prohibited or designated persons and face strict liability for errors they make over designated persons.

Banks must do more than rely on listed entities

As a result of the Arab Bank decision, banks may no longer be able to rely solely on lists provided by government agencies for counter-terrorism efforts. They must now theoretically treat every customer as a potential terrorist organization or person and make a judgment call on whether they may pose a terrorist risk and whether to bank them. If the judgment call is wrong and the bank provides services to a customer who later commits a terrorist act that causes harm, the bank may be liable for substantially contributing to those injuries by banking the customer.

Not enough money in the bank(s) to pay existing claims

Consider the ISIS situation. Many thousands of men who are undesignated and whose identities are not known to banks, have defected to Syria from places like Germany, the UK, France, Australia and Canada to fight with ISIS for an Islamic State. While they are in Syria or before they arrive, they may receive funds from friends and family in their home countries through banks, electronic payment systems, money services businesses or other remittance services. If those men commit terrorist acts that cause the death or injury of Canadians or Americans, any foreign banks that provided banking services, such as wiring of funds, to them may be liable.

There are over 100 more cases similar to the Arab Bank case against foreign banks pending in US federal court in which plaintiffs are seeking compensation for injuries arising from terrorists acts that were committed against US citizens. There may be hundreds more if the ISIS situation deepens and terrorism around the world against Americans increases.

The US Antiterrorism Act of 1990 was intended to bankrupt terrorists, not the banking industry.

The ruling against the Arab Bank imposes what I call “crystal ball liability” (i.e., if a bank does not have and make use of a counter-terrorist financing crystal ball, liability may attach) to routine wire transfers; and may cause millions of people to be unbanked as a result of bank de-risking, driving up banking costs for all Americans and exacerbating the global financial inclusion problem.

Australia proposing sweeping new counter terrorism laws that would make it an offence to travel to terrorist-impregnated regions

By Christine Duhaime | September 20th, 2014

The government of Australia is set to announce sweeping new counter-terrorism laws early next week according to several news reports.

The new anti-terrorism laws will, inter alia:

  • Authorize police to secretly search the home of suspected terrorists.
  • Allow the incarceration for up to five years of persons convicted of preaching radical extremists acts (presumably related to violence).
  • Allow the government to deem foreign regions or cities that are known or suspected terrorist locations as “proscribed” destinations for the purposes of permitting greater anti-terrorism measures to apply.
  • Travelling to, or remaining in, a proscribed location would be an offence under Australian law.
  • Law enforcement will be authorized to conduct covert searches on the property of terrorist suspects without notice of a search warrant until six months after the issuance of the warrant.
  • It will be an offence to promote a terrorist act, or to advocate such an act even it it never occurs.

Australia faces ISIS terrorist threat; closes MSB over suspect terrorist financing

By Christine Duhaime | September 17th, 2014

AUSTRAC unregisters MSB

Australia’s financial intelligence unit, AUSTRAC, has suspended the registration and activities of a money services business (MSB) in Australia over questions arising from potential terrorist financing. It is the first time AUSTRAC has suspended a reporting entity.

The MSB, operating under the trade name Bisotel Rieh Pty Ltd., failed to report all of the funds it sent overseas or to inform AUSTRAC who the beneficial owners of the funds were. According to AUSTRAC, the firm sent $18.8 million to Turkey and Tripoli in 8 months of 2014 and it posed a terrorist financing risk, particularly combined with the fact that the firm had admitted that it smuggled cash from Turkey to Tripoli when it could not open a bank account in Lebanon.

The MSB is co-owned by the sister of a person from Sydney who was convicted of a terrorist offence.

Australian police arrests terrorist suspects

At the same time, Australian police carried out a massive raid to flush out homegrown ISIS supporters in Sydney who threatened to publicly behead a random person in Sydney as part of the commencement of the campaign of terror ISIS intends to carry out in the Western world.

Australia allocated an additional $20 million to AUSTRAC and announced a new national intelligence team to address terrorist financing whose mandate would be to:

  • Prevent persons who have left Australia to fight with terrorist groups overseas from receiving financing or material support from Australia;
  • Identify opportunities to disrupt terrorism; and
  • Monitor financial transactions that are associated with, or tied to, foreign conflict hot spots.