By Dennis Lormel
The Counterterrorism Blog
In the United States, there are three distinct areas where training offers the potential to facilitate the disruption of terrorist financing. These areas include training in the government sector, providing training to other governments developing Anti-Money Laundering (AML) and terrorist financing regimes, and training in the financial sector. For the most part, training in the government sector is adequate. In the international arena, the State Department, Department of Justice, FBI, IRS and Treasury Department have done an outstanding job of coordinating training for countries in need. In addition, consultants provide selective training to certain countries. The question is...has the financial sector done an adequate job of providing terrorist financing training to its employees? Unfortunately, the answer is…the industry has not provided terrorist financing specific training to the level or threshold that it might make a difference.
The Bank Secrecy Act (BSA) requires financial institutions to establish and maintain AML Programs. One of the core required elements of an AML Program is to provide ongoing employee training. Financial institutions and industry organizations should ensure that their AML training programs include a comprehensive terrorist financing component. Financial institutions and industry associations do a credible job of providing AML training; however, the terrorist financing training is seldom more then an overview. Terrorist financing presents distinct differences which warrant specific attention for training purposes.
The USA PATRIOT Act amended and strengthened certain BSA provisions. For example, the definition of financial institution was expanded to include a number of companies not previously covered by BSA reporting requirements. In addition to banks, included were securities dealers, insurance companies, credit card companies, automobile, boat and airplane dealers, casinos and money services businesses, including money transmitters and check cashers. It was mandated that all financial institutions establish AML Programs.
Under BSA regulations, an AML Program must include:
• Internal policies, procedures, and controls designed to detect and report any suspected money laundering activities;
• Designation of a Compliance Officer;
• An ongoing employee training program;
• Performing independent audit functions to test programs;
A sound Know Your Customer (KYC) Program is critical to money laundering and terrorist financing prevention. There has been a proliferation in the use of false and/or stolen identification by terrorist elements, particularly in Europe. This can be an area of vulnerability both to a financial institution and to terrorists and terrorist sympathizers themselves. The more that is known about inherent risk factors and systemic vulnerability, the better money laundering risks and vulnerabilities can be identified and prevented. The same can be said about the challenge of addressing terrorist financing. The risk assessment process is one of the most important steps in creating a vibrant AML and terrorist financing compliance program. This is one area where terrorist financing specific training can be extremely important. Finance is one of the major areas of vulnerability for terrorists. The use of false or stolen identification places a terrorist at greater risk of detection.
With specific respect to the training element of an AML Program, companies should ensure they include a robust terrorist financing component. Although there are certain similarities between AML and terrorist financing methodologies, there are also distinct differences. The most fundamental being criminals are motivated by profit whereas terrorists are motivated by ideology. Criminals derive their funds through criminal activities. Terrorist funds are derived through legal and illegal means, generally more through legal means, such as donations. Criminals tend to favor the formal financial system while terrorists are more likely to favor informal mechanisms, such as cash couriers or hawalas. The money flow in a criminal money laundering scheme will usually be circular. The criminal follows the traditional money laundering steps of placement, layering, and integration. In that process, funds cycle back to the criminal having been cleaned through the three step process. The funding flow of terrorists will generally be linear because the funds are intended to fund a terrorist activity and not come back to or benefit the launderer. Criminals and terrorists use similar methods to move their money, such as structuring deposits to avoid reporting requirements.
It is also important to promote a greater sense of awareness to the broad spectrum of the dimensions of terrorist financing. This includes circumstances where legal and illegal funding methodologies are used by terrorist elements. There are fundraising mechanisms, operational and administrative support mechanisms, and other considerations, which require use of the formal and informal financial systems. This variance is exacerbated by the range of positions and responsibilities individual terrorists and terrorist supporters assume to include leaders, fundraisers, donors, financiers, facilitators, operatives and suicide bombers. Financial requirements and flows for the full gamut of terrorists and terrorist supporters vary according to factors to include their role, location and affiliations. In this context, financial institution employees receiving training should be encouraged to consider what type of individual they would most likely deal with in their area of responsibility and in what capacity. For example, are they involved in retail or private banking and would they be more likely to deal with a street operative or wealthy financier. This is an important consideration because it breaks down the broad generalization of terrorist financing and begins to create a more specific identifiable image of a terrorist or terrorist sympathizer and how they likely use the banking system. Such dealings actually take place in daily life. Financial institution employees must realize that it is possible that they could encounter terrorists or their supporters during their daily work functions
The terrorist financing component of AML Training should also stress the critical importance of Suspicious Activity Reporting (SAR). In view of current and emerging data mining capabilities of government agencies to include FinCEN and the FBI, information reported in the narrative section, as well as information in descriptor sections of SARs must be thoroughly completed. Such qualitative information will enhance the possibility of linking SARs to terrorist activities. The importance of properly filed SARs can not be emphasized enough. The FBI has integrated BSA information, to include SARs and Currency Transaction Reports (CTRs), into its Investigative Data Warehouse (IDW). Multiple databases are then accessed in a single query. According to testimony before the House Committee on Financial Services, Subcommittee on Oversight and Investigations on May 26, 2005, the FBI reviewed approximately 71 million BSA documents through the IDW process for there relevance to counterterrorism investigations and intelligence matters. The review identified 88,000 SARs and CTRs that bore some relationship to subjects of terrorism investigations. It is important that training not only touch upon the importance of filling out SARs completely but that SAR information can identify possible links to terrorism. Quite frankly, this type of training very seldom takes place. Terrorist financing SAR related training should also discuss the importance of not filing defensive SARs.
There are numerous written reports, studies and reference documents pertaining to terrorist financing that are excellent resources for training purposes. Sources to include FinCEN, FATF, FBI, OCC, SEC and the 9/11 Commission Report offer meaningful perspectives. Training experts should be compiling such material for inclusion in training forums. Most recently, the five federal agencies responsible for BSA examinations of financial institutions issued a new Examination Manual. This manual is an example of a document that contains countless training tips.
The most compelling reason to conduct terrorist financing specific training is to stress to financial institution employees that, in fact, they are on the front lines in the war on terrorist financing and thereby the war on terrorism. They need to be cognizant that: SARs they file can make a difference. Truly understanding that on any given day they might interact with a terrorist can make a difference. Better KYC practices can make a difference. A different mind set and a more consistent level of vigilance is critical and will make a difference.
http://counterterror.typepad.com/the_counter
terrorism_blog/2005/08/training_an_imp.html
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