Terrorism Financing: A New Emphasis on Tracking. But Will It Be Effective?

By Victor Comras

A major tactical argument is brewing within the government, the banking community and among terrorism financing experts over whether to freeze or to track funds related to terrorism financing. The initial response after the 9/11 attack was to seek out and freeze bank accounts and other economic assets associated with al Qaeda, the Taliban and associated individuals and entities. This approach was reflected in President Bush�s September 24, 2001 Executive Order and in a series of UN Security Council Resolutions. Within a short period after 9/11 some $132 million in assets were reportedly seized. Much of this belonged to the Taliban Government in Afghanistan. Since then it has proved particularly difficult to find and freeze additional terrorism related funds. And the effort in the United States turned to following or tracking suspicious funds. These efforts are now being expanded to possibly cover the millions of international transactions that flow through the US banking facilities. But, the international banking community may resist these moves. They already feel burdened by account search and freezing orders, and by required �due diligence� and �know your customer� rules. Many in the banking community, and the international community believe that the emphasis should remain on finding and freezing terrorist assets. They are concerned that tracking large numbers of transactions will unduly burden the international banking system, and provide little results.

Tracking funds, the US hopes, will lead investigators to recipient terrorist cells as well as help identify sources of terrorism funding. But, the successes -- and there have been some � are still few and far between. The difficulties with tracking were described in some detail by Senior Customs Agent David Kane in an affidavit filed in the SAFA cases. He told the court ��the finances of the Safa Group, including charities required by law to open their books to the public, exhibited a convoluted web of multiple transactions between related corporations and charities that made it virtually impossible for federal investigators to ascertain where the money �ultimately went. Indeed, the current investigation has traced millions of dollars through layers of related companies and charities to the Isle of Man � from which point the trail cannot practically be followed.� This is why even the successful terrorism funding investigations usually end up with plea bargains on lesser charges. Some experts argue that the US must continue to pursue freezing actions in order to punish terrorist financiers and deter terrorist financing. Putting their assets at risk may be the most effective penalty and deterrent we have.

FinCen is the US agency most active in combing banking data for leads to terrorism. They mine data collected under the Bank Secrecy Act and link it with law enforcement, commercial, and other intelligence data sources to �follow the money� and to identify the financial networks tied to terrorism and other illegal activities. OFAC, on the other hand, is charged with issuing asset and bank account freezing orders, and following up with banks to ensure that targeted assets are identified and frozen.

Some 14.8 million reports were filed with FinCen in 2004. These reports were imposed on the US banking and financial community by the Bank Secrecy Act These reports included 663,655 so-called SAR�s (Suspicious Activity Reports), an increase of over 250,000 in one year. SARs provide the basic gristmill for possible money laundering and terrorism funding research and investigation. But only a very small percentage of these actually lead to any investigations.

The United States has been the biggest champion of tracking terrorist funds. While other countries have also established Financial Intelligence Units (FIU�s) similar to FinCen, these FIUs are, for the most part, less active. They rely heavily on their banking and financial communities to do their own self-policing. Few countries other than the United States have imposed penalties on banks for failing to file SARs or to meet other due diligence requirements. This is one reason why the US has decided to look more closely at the millions of international transactions that flow through the US banking system. According to a report in the New York Times, the Bush administration is working on a new plan that will give US government agencies access to logs of international wire transfers into and out of American banks. Such access is authorized by Section 6302 of The Intelligence Reform Bill passed by Congress in December, 2004. That bill authorizes the Secretary of the Treasury to prescribe regulations requiring financial institutions to report on �cross-border electronic transmittals of funds.� But first the Secretary must consult with the Federal Reserve and inform Congress of the rationale and criteria used to determine that such regulations are reasonably necessary to identify money laundering and terrorism financing.

The American banking community is beginning to take umbrage at these potential new measures. They are concerned that further government probing will encroach on client and banking privacy, and will place increased reporting burdens, costs and risks on their business activities. They are also concerned that they will simply loose business to overseas banks

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