Money Laundering and Terrorist Financing

Banks Have Obligation to Thwart Laundering Attempts
Money Laundering and Terrorist Financing
The death of Osama bin Laden led certain global markets, including the U.S., to quickly realize economic improvements. But political unrest in parts of the world where terrorism and sympathy for al-Qaeda are strong is likely to fuel long-term financial implications, the least of which relates to terrorists' efforts to launder money through legitimate banking channels.

Experts say banks should be vigilant as they review suspicious transactions for signs of money-laundering and violations to the Bank Secrecy Act .

Kevin Sullivan, an anti-money-laundering expert and former New York State police investigator, says banks and credit unions should be mindful to keep their Office of Foreign Assets Control programs and screenings up-to-date, especially as they relate to funds and transactions stemming from parts of Northern Africa, where al-Qaeda has support. bin Laden's death, Sullivan says, has likely created an unexpected void to which terrorist groups will react. "It will be interesting to see how things progress," Sullivan says.

Sullivan suggests banks keep their eyes on unusual or high-volume activity conducted via emerging channels, such as mobile. "This is the bottom line: Innovation equals opportunity," he says. "That is true of both the good guys and the bad guys. Money laundering is a moving target, and the bad guys will constantly be looking for new means and methods. New methods are always helpful to the bad guys, especially if the new method has no AML policies and procedures in place, there is no sharing of information with authorities, and the management is in denial that anything bad could ever happen to their system."

But Sullivan is quick to point out that the financial world is much wiser today than it was nearly a decade ago, when bin Laden launched the 9/11 attacks against the World Trade Center. In fact, Sullivan, who was serving on the New York State Police force when the WTC towers were hit, says banks today view the roles they play in curtailing terrorist funding much differently.

"I don't like to talk about it too much, as I consider myself very lucky to have avoided injury, with reference to the events of 9/11," he says. "But I will say that I will never forget the memory of being at Ground Zero every day for months and seeing the destruction and smelling the hideous odor that permeated the air. Once I got back to doing the money-laundering thing, it was apparent that the rules of engagement had changed. There was more cooperation with the financial institutions and AML programs were now seriously and prominently on the map."

In this exclusive interview [transcript below] with Sullivan, just two days after news of bin Laden's death, Sullivan discusses:

  • The events of 9/11, SARs and BSA compliance;
  • Staying on guard for money-laundering and other suspicious activity;
  • Ensuring AML efforts catch attempts to launder terrorist funding.

Sullivan is a former Investigator with the New York State Police and was the state investigations coordinator assigned to the NY HIFCA El Dorado Task Force in Manhattan. He has more than 20 years of police experience and holds a master's degree in economic crime management. He is a certified anti-money laundering specialist and anti-money laundering professional. He is also the director of AMLtrainer.com, am AML policy and training academy.

TRACY KITTEN: The death of Osama bin Laden led certain global markets, including the U.S., to quickly realize economic improvements. But political unrest in parts of the world where terrorism and sympathy for al-Qaeda are strong is likely to fuel long-term financial implications, the least of which relate to terrorists' efforts to launder money and terrorist funding through legitimate banking channels. I'm here today with anti-money laundering expert, Kevin Sullivan.

Kevin, political unrest in certain parts of the world, namely, Northern Africa, has led to enhanced scrutiny from regulators who have warned banking institutions to increase and enhance their SARs and be ever vigilant about violations to the Bank Secrecy Act.

How is bin Laden's death expected to heighten already tense global political situations?

KEVIN SULLIVAN: I believe that the potential leadership vacuum might cause some confusion and/or even a power struggle. However, due to the West's crackdown on terrorist financing, much of the funding of al-Qaeda has already been transferred to individual cells that are already self-funded. It's really unknown what consequences will develop, as the landscape is changing quickly; with the various social revolutions and now with this particular cancer being removed, it will be interesting to see just how things progress.

KITTEN: And, Kevin, how could bin Laden's death fuel efforts to launder terroristic funds through traditional and legitimate banking channels?

SULLIVAN: Much of the al-Qaeda funding mechanism is now done through nontraditional banking methods, and as a result of that, their funding has become more desperate, and they have resorted to things like drug trafficking, kidnapping, counterfeiting and smuggling as a means to fund themselves. However, using couriers is a very slow and inefficient method, so if there were to be any plans for a retaliatory event, the terrorists may have to return to more traditional methods of moving money to fund such an event.

Looking for Patterns

KITTEN: And what specific points or trends should banks and credit unions be on the lookout for? For instance, can they glean anything from increased ATM transactions or the opening of new bank accounts?

SULLIVAN: Certainly, and they should be on the lookout for several patterns. One, any increased activity within all areas that are considered to be high risk for terrorist activity. They should transfer to locations that are not consistent with business activity. They should look at large overseas transfers that originate or are withdrawn in cash. They should be looking for transfers to or from unlicensed, unregistered, or unincorporated business entities. And, finally, they should be sure that their OFAC program is constantly updated and consistently scrubbed.

KITTEN: And, Kevin, what opportunities might terrorists or political figures from countries like Libya that have been flagged to funnel funds through prepaid services, how could they reap the benefits from some of these traditional yet alternative payment methods, such as open-loop prepaid credit cards?

SULLIVAN: Well, I doubt that the death of bin Laden changes anything with regards to any other organized criminal enterprise or any terrorist group. They will do what they do, which is exactly why the good guys have to remain as diligent as ever.

KITTEN: What other financial instruments, beyond prepaid cards, might you consider to be of higher or greater risk than other payments channels for money laundering activity?

AML: Connecting Bank Departments and Silos

SULLIVAN: Now, this is the question that always gets the most pushback, and there is a certain amount of naïveness within the ranks of entrepreneurs as it relates to their new payment methods. They just don't think that money laundering or terrorist financing affects their payment technology. They make a very, very simple mistake. While they may be very bright engineers, they may be great developers or salesmen, they are usually not anti-money laundering folk or criminal justice people. They need to listen when those experts talk to them. This is the bottom line. Innovation equals opportunity. That is true of both the good guys and the bad guys. Money laundering is nothing more than a moving target, and the bad guys will constantly be looking for new means and methods. New methods are always especially helpful to the bad guys, particularly if the new method has no AML policies and procedures in place, there is no sharing of information with authorities, and the management is in strict denial that anything bad could ever happen to their system.

As I mentioned previously, the legitimate AML world has done a great job of cracking down on the usual tried and true money laundering methods, which is exactly why the bad guys will be looking at each and every new payment method that comes along. So, to answer your question, the latest new method that is getting a lot of looks from the government is mobile payment methods. Now, this does not mean that the industry in itself is bad, nor should there be any hysteria surrounding it. What is means is that it needs to be carefully evaluated, examined, and analyzed to find the holes and create plugs for those holes. And just remember something. The credit cards have been around for a long, long, long time, and yet they still have issues with loss, fraud, and money laundering. Now that doesn't make the credit card industry bad, not at all. It should, however, point out how diligent the bad guys are in constantly developing new workarounds to counter the good guys' workarounds, and so on, and so on, and so on.

And that's just a game that we play. Every time the good guys build a 10-foot wall, the bad guys will construct an 11-foot ladder. And this should be an example to developers of new payment technology. Instead of denying the possibilities for issues, they should recognize the potential for problems, work with the authorities, and develop AML and fraud procedures and deal with it right from the get go.

KITTEN: Now, Kevin, I'd like to maybe take a step back and ask you a little bit more about your personal perspective. Your perspective is a bit different in that you have a personal connection to bin Laden and Sept.11. You were working for the New York State Police when bin Laden ordered al-Qaeda to attack the World Trade Center. What can you share with us about the impact that experience had on you personally as well as on your career?

9/11: Career-Changing Event

SULLIVAN: Well, with respect to those people who lost loved ones, I don't like to talk about it too much, because I consider myself very, very lucky with how I managed to avoid injury with reference to the events of 9/11. But I will say that I will never, ever forget the memory of standing at Ground Zero surrounded by 10 stories worth of rubble, and doing that every day for months and seeing the destruction and smelling this hideous odor that permeated in the air. A couple months after I was reassigned back to my normal position and back to doing the money-laundering investigations, it was apparent that the rules of engagement had completely changed. There was more cooperation with the financial institutions, and the AML programs were now seriously and prominently on the compliance map.

KITTEN: And how did Sept. 11 affect your view of terrorism and the funding that goes into it?

SULLIVAN: Well, while there had been previous wakeup calls, this was the one that woke up the sleeping giant. You know, previous to 9/11, we already had the BSA in effect, but it was fascinating seeing the countries come together to combat this issues. I remember reading many of the SARs as part of my job duties prior to 9/11, and then the submission of SARs after 9/11 absolutely took off. The number of informal meetings that law enforcement and the financial institutions had also skyrocketed, which I think really became an important part of the cooperative effort and how we managed to do such as good a job as we did do. And personally, 9/11 ended up becoming the catalyst for what I do now with the AML Training Academy, which is mostly some form of compliance training.

As I talked previously about some of the naïveness out there in some of the areas of the financial industries, particularly with new technologies, I have found that going out and explaining to folks exactly who and what this is all about and how money laundering works from a street level perspective, and to be able to draw on actual experiences and talk to people about those as opposed to just giving them terms in a book, and how it relates within their sphere of influence, that seems to create the light bulb moment for a lot of people; they understand it better. And for me, it seems to have some sort of my own personal therapy involved in it.

Banks' Role in Fighting Terrorist Funding

KITTEN: And given your personal connection, Kevin, how important is it for banks to be on guard for laundering of terrorist funding?

SULLIVAN: Oh, you just don't get anything much more important than this. I mean, firstly, you don't want anything bad to happen or people to get injured in any type of event. Secondly, you don't want to be the financial institution that was used in the facilitation of any type of terrorist event. And thirdly, you need to be on guard and comply with the regulations, and you don't want to be fined by the regulators.

KITTEN: And before we close, Kevin, what final thoughts would you like to leave our audience with, as they relate to bin Laden and the impact his death is expected to have on the financial system generally?

SULLIVAN: In the long run, I don't think it will have much impact. As I mentioned earlier that most of al-Qaeda is already self-funded on an individual cell level. Further, bin Laden and al-Qaeda are only one of numerous terroristic groups out there. However, in the short run, as we prepare for any type of retaliatory strike, let us be cognizant that money is needed to fund these potential acts of terror, and you should be on the lookout for any type of sudden or suspicious money movement. This is not the end of the war on terrorism, but hopefully it is the beginning of an end.


About the Author

Tracy Kitten

Tracy Kitten

Director of Global Events Content and Executive Editor, BankInfoSecurity & CUInfoSecurity

A veteran journalist with more than 20 years' experience, Kitten has covered the financial sector for the last 13 years. Before joining Information Security Media Group in 2010, where she now serves as director of global events content and executive editor of BankInfoSecurity and CUInfoSecurity, she covered the financial self-service industry as the senior editor of ATMmarketplace, part of Networld Media. Kitten has been a regular speaker at domestic and international conferences, and was the keynote at ATMIA's U.S. and Canadian conferences in 2009. She has been quoted by CNN.com, ABC News, Bankrate.com and MSN Money.




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