Trans-national Crime CFT - Introduction, Issues and Best Practices Non Traditional Security Course...

Trans-national CrimeCFT - Introduction, Issues and Best Practices

Non Traditional Security Course – RSIS, NTU / 22 Aug 2007

Prepared by:Gunawan Husin

Gunawan Husin · 22 August 2007 · page 2

Risk & Capital Management

Agenda

• CFT – Key Concepts

• CFT Counter Measures

• Implementation Issues

• Roles of Financial Sector

• Policy Recommendations

• Best Practices

• Case Studies



Protection GroupPolitical Uncertainty

Terrorism: A continuing threat

Natural Hazards

Infrastructure Failure



Top 5 risks in the region

Fraud/ReputationalRiskClimate/Health Risk

Political Risk

Technology/SystemRiskTerrorism Risk



Definition

Process of filtering proceeds (placement) of criminal activities through one or more financial transactions (layering) in order to give them legitimacy (integration)

Process of raising, storing and moving the funds, obtained through illegal and / or legal means for the purpose of terrorism acts and /or sustaining lifeblood of the terrorist organisation



Source: The IMF/ World Bank, Reference Guide to Anti Money Laundering and Combating the Financing of Terrorism, 2006



Terrorism and Crime

Suspects + Money = Act

Suspects + Act = Money



CFT KEY CONCEPTS



Operational cost of attacks

Terrorist Attacks Date Operational Costs

(est) London Bombings 7 July 2005 £ 7,240

Madrid train bombings 11 March 2004 $10,000

Istanbul truck bomb attacks 15 and 20 November

2003

$40,000

Jakarta JW Marriot Hotel bombing 5 August 2003 $30,000

Bali bombings 12 October 2002 $50,000

World Trade Centre / Pentagon, USA 11 September 2001 $303,672- $500,000

USS Cole attack, Yemen 12 October 2000 $10,000

East Africa embassy bombings 7 August 1998 $50,000

Source: UN Monitoring Group Report 2004 and NTFIU





TerroristFinancial Needs

TerroristFinancial Needs

Propaganda

Safe House

Training

Bribery

Recruitment

Supplies

Communication

Travelling



Funds Flow

Organisational Cost

Attack Operational Cost

Targeting Terrorist Financial Network



Terrorist Financing

Sources of Funds• State sponsors

• Private Donors

• Charities

• Legitimate business enterprises

• Criminal Activities



Proceeds of crime

Drugs transactions

Bank fraud

IPR

Smuggling

Internal fraud - misuse of funds

Illegal logging

Acts of terrorism

Kidnapping / Extortions



Why Charities ?

They enjoy public trust

Ease of creation

Access to substantial funds

Could be cash intensive

Legitimate reasons to operate in areas of conflict and/or poverty

Different levels of charity regulation around the world



Typologies - Charities

Purpose: To deal with large values and volumes of transactions hence avoid attracting attention of local officials

Collusion with banking officer and local corrupt government officials

Fraudulent solicitation of donors

Aid worker’s misuse of position, where terrorist group infiltrates a charity organisation by placing its member as a key financier in the charity.

Branch office defrauds headquarter, in order to obtain additional funds from the headquarters by inflating the number of fictitious beneficiaries



COUNTER MEASURES



CFT Counter Measures – The Resolutions

UNSCR Resolution Purpose

1267, 15 October 1999 Establishes Security Council Committee (1267 Committee); imposes limited air embargo and funds and financial assets embargo on the Taliban

1333, 19 December 2000 Air and arms embargo, restricted travel sanctions, freezing of funds of Osama Bin Laden and associates

1363, 30 July 2001 Establishment of a mechanism to monitor implementation of measures imposed by Resolutions 1267 (1999) and 1333 (2000)

1373, 28 September 2001 Measures on countering threats to international peace and security caused by terrorist acts, and mandating formation of Counter-Terrorism Committee

1377, 12 November 2001 Call upon member states to implement fully Resolution 1373

1390, 16 January 2002 Effective merging of freezing measures of Resolutions 1267 and 1333

1452, 20 December 2002 Exclusions to the freezing requirement of Resolution 1267 and 1333, to cover expenses for basic expenses and charges for routine maintenance of assets, and for extraordinary expenses after approval of the “1267 Committee”

1455, 17 January 2003 Measures to improve implementation of freezing measures of Resolutions 1267, 1333 and 1390

1456, 20 January 2003 Measures to particular comply fully with all relevant resolutions of the Security Council, in particular resolutions 1373 (2001), 1390 (2002) and 1455 (2003).

http://www.un.org/terrorism/sc/htm



Financial Action Task Force

9 Special Recommendations on Terrorist Financing

SR 1: Implementation of International legal instruments

SR 2:Criminalisation of the financing of terrorism, terrorist acts and terrorist entities

SR 3: Freezing and Confiscation of terrorist assets

SR 4: Reporting transactions related to terrorism

SR 5: International Cooperation

SR 6: Alternative Remittance Services

SR 7: Wire Transfers

SR 8: Non-profit Organisations

SR 9: Cash Couriers



Implementation Issues

• Multi dimensional challenge

• Awareness level

• Level of ‘’intelligence’’ sharing – Feedback ?

• Uneven level of playing field

• Resources implication

• Cross Border Cooperation

• How about other high risk industries?



Key Success Factors

• Political Willingness– Ratification of UN Conventions

– Implement FATF recommendations

– Cooperate with other jurisdictions via Bi/Multi Lateral agreements

– Mutual Assistance

• Public Private Partnership – Capacity Building

– CFT Policy

– Project group

– Awareness seminars

– Financial sector to assist in investigation



Countering Terrorist Financing

• Requires financial intelligence Importance of financial investigations

Financial footprints – surveillance

Profiling techniques

Account activity analysis – out of profile indicator

• Partnership is key – participation of financial sector

• How to develop suspicions

• Also include non transactions ?



Recommendation – Best Practices

• Integration of Financial Investigation into National CT Strategies

• Create / Strengthen and Lead Public Private Partnership Scheme

• Engage in Cross Border Cooperation

• “ Regulated Sector”

• Establish and Strengthen FIU capability

• Top Management Support

• Enhanced KYC and CDD Process

• Risk Based Profiling

• Engage actively in PPP



Counter Measures – Int’l Best Practices

Tactical Measures Legislation and Strategy

Multilateral cooperation

Freeze, Seize and Confiscate

Sanctions



Counter Measures – Int’l Best Practices (2)

Strategic Measures – Public Sector Integration of Fin Investigation into national CT strategy Develop, lead and strengthen PPP Establish and strengthen FIU Regulate other sectors at risk Cross Border Cooperation



Counter Measures – Int’l Best Practices (3)

Strategic Measures – Private Sector Develop compliance measures in place

Engage and Participate in the PPP scheme



Key Financial suspicious indicators

• Structuring of transactions amount

• Funds sent to or received from locations of concern

• Mismatch between personal /company profile with course of action

• Deposits followed by immediate withdrawals



ROLE OF FINANCIAL SECTOR

(First and Last line of defense)



Why Banks?

Global network

Access to other markets

Competitiveness nature

Culture of confidentiality and secrecy

Various intensity of financial regulations between jurisdictions

Product and Services range

Innovative - Customer friendliness

Profit motive vs Risk Management



What Bank could do ?

Simplistic Responses

Don’t offer innovative products

Place small limits on high risk transactions

More frequent password changes

Strategic Responses

Detection capability

Behavioural analysis

Profiling

Capacity building and partnerships



What Banks should do

Partnership within and with public sector

Build capacity, research and training

Information sharing - case studies, typologies and analytical skills Improve STR/SAR capability

Improve STR/SAR quality

Demonstrate active role in war against terror and financial crime



Implication on Banking Sector

• Need for sound AML / CFT program

• Increased risk-based AML/CFT culture

• Better understanding on regulatory requirements

• Active cooperation within FI and CFT community

• Improve quality of suspicious transactions / activity reports

• Understanding of reputation and operations impact



CFT Compliance Program

• Top management Commitment

• Customer identification process

• Risk – Based due diligence

• Data Retention

• Suspicious reporting

• Risk Based profiling



Various level of readiness

• Don’t care

• Try not to find

• Pretend to be compliant

• Be compliant

• Letter of law/regulation

• Spirit of law/regulation

• Productive use of resource

• Do what is appropriate, incidentally meeting obligations

Different people sit at different stages



IMPORTANCE OF FINANCIAL INVESTIGATIONS



UK NTFIU Strategy

• Narrow approach vs Wide Approach

• G8 All Counter – Terrorism investigations must include financial investigations

• Public – Private Partnership



Benefits of Financial Investigations

Full profiles provide: Behaviours

Locations

Associates

Email

Telephone

Monitoring – precursor activity



Why Financial investigations?

Financial Investigations provides:– Good Evidence– Good intelligence– Opportunities for disruption

it can be used to trace and follow terrorists and those who support them.

it can be linked to the investigation of criminal activity.

it allows financial regulators to focus asset freezing and sanctions accurately and appropriately.

it can be used to protect sensitive sources





Next Challenges

• The need to understand adverse effect of financial crime

• Various jurisdictions with uneven level of progress

• The need to understand CFT roles and responsibility

• The need for building capacity in CFT

• The need for greater cooperation and collaboration

Need to transform financial information into financial intelligence



Public Private Partnerships

• Fulfilling legal and regulatory obligations

• Closer working relationships within key sectors, to promote highest standards of CFT controls

• Fulfilling legal and regulatory obligations

• To share internal classified intelligence, on high risk customers and locations of concern

• Capacity Building

• Develop Standards and Best Practices

• Continue public campaign on CFT awareness



CFT Policy Brief



Future Direction

• 24/7 incident support• Account monitoring• Transaction monitoring• Intelligence Exchange• Academic Collaborations



Concluding Remarks

• There is no terrorism without money

• CFT deserves an area of specialisation

• CFT is more than a political problem, it requires holistic approach

• Law Enforcement Agencies have the Knowledge, Financial Sector has the tool

• “P” is the key

• Together we will create a hostile environment for terrorism

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