International recognition of, and action against, the threat posed by money laundering continue to increase. Money laundering poses international and national security threats through corruption of officials and legal systems, undermines free enterprise by crowding out the private sector, and threatens the financial stability of countries and the international free flow of capital. Undeniably, the revenue produced by some narcotics-trafficking organizations can far exceed the funding available to the law enforcement and security services of some countries.
After the terrorist attacks of September 11, 2001, the United States and its allies launched a global war on terror focused on five fronts: diplomatic, financial, military, intelligence, and law enforcement. The United States and the global community quickly recognized the critical role that combating terrorist financing should play in the overall global effort against terrorism.
Money Laundering and Terrorist Financing: Differences and Similarities
Because of these larger organizational costs, terrorists often finance their terrorism efforts with a portion of the proceeds gained from traditional crimes such as kidnapping for ransom, narcotics trafficking, extortion, credit card fraud, counterfeiting, and smuggling. Indeed, some Foreign Terrorist Organizations (FTOs), such as the Revolutionary Armed Forces of Colombia, (FARC), the United Self Defense Forces of Colombia (AUC) and Sendero Luminoso (Shining Path) in Peru, are so closely linked to the narcotics trade that they are often referred to as "narcoterrorists."
Like narcotics-related money launderers, terrorist groups also utilize front companies; that is, commercial enterprises that engage in legitimate enterprise, but which are also used to commingle illicit revenues with legitimate profits. Front companies are frequently established in offshore financial centers that provide anonymity, thereby insulating the beneficial owners from law enforcement. In addition to commingling the proceeds of crime, terrorist front companies also commingle donations from witting and unwitting sympathizers.
Movements of Criminal and Terrorist Funds
In addition to the continued use of the formal financial sector, terrorists and traffickers alike employ informal methods to move their funds. One common method is smuggling cash, gems or precious metals across borders either in bulk or through the use of couriers. Likewise, both traffickers and terrorists rely on moneychangers. Moneychangers play a major role in transferring funds, especially in countries where currency or exchange rate controls exist and where cash is the traditionally accepted means of settling accounts. These systems are also commonly used by large numbers of expatriates to remit funds to families abroad.
Both terrorists and traffickers have used alternative remittance systems, such as "hawala" or "hundi," and underground banking; these systems use trusted networks that move funds and settle accounts with little or no paper records. Such systems are prevalent throughout Asia and the Middle East as well as within expatriate communities in other regions.
Trade-based money laundering is used by organized crime groups and, increasingly, by terrorist financiers as well. This method involves the use of commodities, false invoicing, and other trade manipulation to move funds. Examples of this method include the Black Market Peso Exchange in the Western Hemisphere, the use of gold in the Middle East, and the use of precious gems in Africa.
Some terrorist groups may also use Islamic banks to move funds. Islamic banks operate within Islamic law, which prohibits the payment of interest and certain other activities. They have proliferated throughout Africa, Asia, the Middle East, and most recently Europe, since the mid-1970s. Many of these banks are not subject to the anti-money laundering regulations and controls normally imposed on secular commercial banks. While they may voluntarily comply with banking regulations, and in particular, anti-money laundering guidelines, there is often no control mechanism to assure such compliance or the implementation of updated anti-money laundering policies.
Combating Money Laundering and Terrorist Financing: An Integrated Approach
The U.S. has developed an "anti-money laundering/counterterrorist financing" (AML/CTF) strategy based on three pillars:
While well-established mechanisms of interagency cooperation to fight money laundering have existed for a number of years, in order to more quickly effect this integration within the U.S. Government for terrorist financing, the President established a Policy Coordination Committee (PCC) under the auspices of the National Security Council to ensure the proper coordination of counterterrorist financing activities and information sharing among all agencies. The PCC coordinates and integrates the efforts of the disparate entities and focuses them on collectively pursuing terrorists and their financiers. Other countries have also taken a similar approach at integrating AML/CTF efforts either through a coordinating ministry, national anti-money laundering council, or counterterrorist center.
Many governments have used specialized task forces to integrate successfully domestic operations aimed at combating money laundering and/or terrorist financing. These task forces typically include FIU personnel, financial investigators, central bank employees, and prosecutors. Indeed, the USG, based on its experience in training its counterparts around the world, is increasingly employing cross training (e.g., select financial regulators taking part in financial investigative courses for law enforcement) as a means of encouraging practical integration of AML/CTF efforts.
International organizations and bodies, as well, are increasing coordination of their AML/CTF efforts. For example, there is now unprecedented cooperation between the FATF and the IMF and World Bank. The FATF and these international financial institutions have adopted a joint methodology to evaluate AML/CTF regimes and are cooperating in their respective on-site assessment programs.
The FATF and the G-8 Counter-Terrorist Action Group (CTAG) are also engaging in a cooperative effort to build CTF capacity by integrating FATF training and technical assistance reports with efforts by CTAG to coordinate donor assistance. Other organizations, such as the United Nations, the Egmont Group of FIUs, the FATF style regional bodies, and regional organizations, such as the Organization of American States, are also increasing their cooperative efforts.