Fighting Terrorist Financing: Canada's Problems and Pentagon's "Threat Finance" Initiatives

By Andrew Cochran

On October 24, I posted three suggestions for federal financial regulators in the U.S. to consider to improve anti-terrorist financing efforts. Two separate terrorist financing issues worth considering include (1) a recent report which raises questions whether Canada's financial intelligence units are reliable partners in anti-terrorist financing efforts or "a big black hole," and (2) the degree of integration of "threat finance" into the Defense Department intelligence and military operations.

(1) Are the Canadian financial regulators reliable partners or just "a big black hole?"

Two weeks ago, the inquiry into the Air India bombing received a report from consultants at Deloitte & Touche who were asked to interview institutions and organizations that currently report large cash transactions, suspicious transactions and cross-border wire transactions to FinTRAC, the Canadian government agency for the receipt, analysis, assessment, and disclosure of financial intelligence on suspected money laundering and terrorist financing (basically the sister agency to Treasury's FinCEN). The Deloitte consultants were to determine those institutions' views on the adequacy of Canada’s existing legal framework for the constraints on terrorist financing in, from or through Canada.

FinTRAC received very low marks from the interviewees, who described it as a "big black hole" into which lots of information flows in, but nothing flows out. Some quotes from the report: "A common theme amongst all those interviewed is the fact that terrorist financing is not on anyone’s radar screen... Have any specific patterns been identified?... The feedback we get from FINTRAC and the RCMP on this is that you shouldn’t lose sleep over the fact that you’re not seeing any prosecutions for money laundering or terrorist financing.” The Royal Canadian Mounter Police and Canadian Security Intelligence Service were also lacking in the eyes of the experts interviewed. "You never hear anything about CSIS. There’s no exchange with those people."

Yet there has been no reaction to the report in either Canada or the U.S. and almost no press coverage (see this lonely story in which the head of the Air India inquiry blasted FINTRAC for lack of cooperation). The Canadian government didn't issue a rebuttal. In the U.S., the FinCEN Director publicly spoke of "very fruitful discussions... to learn how in Canada there is a focus on risks by the Financial Transactions Reports Analysis Centre (FINTRAC)" after the report was released.

I have some questions: Was Deloitte accurate in its assessment or was its methodology flawed? Are the Canadian financial intelligence units reliable partners in the prevention of cross-border terrorist financing or not? Shouldn't the U.S. government read this report and worry about Canada's ability to detect and prevent cross-border terrorist financing, especially considering its recent terrorism-related cases?

(2) The degree of integration of "threat finance" into the Defense Department intelligence and military operations

On October 12, I posted about the first study issued by an arm of the Defense Department (the U.S. Army Command and General Staff College at Ft. Leavenworth, Kansas) on the efforts to disrupt terrorist financing. It's another indicator of DoD's increasing integration of a "threat finance" mindset into more layers of their operations. "Threat finance" is a recently formed issue area in DoD, with the U.S. Pacific Command, U.S. Central Command, and the Office of Special Operations and Low-Intensity Conflict creating specialized units to gather intelligence and take actions against terrorist and insurgent financial networks, with a particular emphasis on Iraq. The DoD units call it "threat finance" to underscore the application of DoD assets against insurgencies, and not just against those terrorist organizations and persons designated by the State and Treasury Departments. You can review Congressional testimony in 2005 and a special presentation in 2006 by senior DoD officials on threat finance programs. It doesn't get enough publicity, but DoD and Treasury co-chair the Baghdad-based Iraq Threat Finance Cell (ITFC), which collects, analyzes, and disseminates financial intelligence to combat the Iraqi insurgency and might be making a serious impact.

The Defense Department's long-term entry into the efforts to cut off terrorist financing is an important step. I hope we'll hear soon of the results in Iraq and elsewhere from DoD's recent dedication to this area.

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