The decision of the G20 to propel the Paris-based Financial Action Task Force into action on terrorist funding has two problems. First, global banks’ have failed to train staff and their systems in the latest financing techniques. Second, terrorists use cash-based money transfer systems to move money and not conventional banks.
The evidence for the first point is provided by Martin Woods, an experienced money laundering reporting officer who has worked in a number of banks including ABN-AMRO and Wachovia. He says that money designated for commission of an outrage is likely to be introduced to a bank in small amounts, deliberately to offset any suspicion. Once a number of deposits have been made, the sums will be aggregated into an amount that would have caused suspicion had it been deposited in one tranche. This technique is sometimes called ‘smurfing’.
The answer, says Woods is much greater training of bank staff at all levels, from teller to the compliance officials. But he is concerned that the systems installed since September 11 and 7 July 2005 have not kept up with today’s more organised – and more financially savvy– terrorist.
Woods says, ‘spotting money laundering is difficult. But money designated for terrorist funding is very hard to find. You are looking at the aggregated activity of four or five different kinds of transactions in an account. Ordinarily the people who see that kind of activity are in the financial investigations unit, not the frontline staff. It is very difficult to spot that and we should be giving more training to the professionals. We need to review our training because we didn’t really get it off the ground post 7/7. In the light of what happened in Paris, it is no good closing the door after the horse has bolted.’
Woods says that the absence of a British outrage since 7/7 indicates a degree of success in countering terrorist financing, but he warns, ‘to sustain the success, we need to see how the terrorists have changed their techniques. We then need to decide how we react to the change.’
While bankers will most certainly want to ensure they keep terrorist money out of the system, if only to head off the reputational damage of being found with any inside the tent, the equally important question is whether bank systems are that relevant to the entire subject of terrorist financing at all. It is well established that terrorists largely operate in a cash economy. Terrorist money is more likely to move through the international hawala network where agents or hawaladars sympathetic to their cause move funds using banking on trust. In such a system, there is no scrutiny of those handling the funds of trusted clients, and no questions are asked of those depositing or withdrawing suspect funds.