While financial institutions are familiar with the concepts of transnational organized crime (TOC) and foreign terrorist organizations (FTO), many may not be fully aware of the expanding alliances between the two.
Organized crime and terrorism groups are increasingly relying on each other to create troubling, synergistic outcomes. While both groups differ in many aspects, the way they are funding themselves involve some of the same tactics and methods. The nexus between these two seemingly distinct groups, is adding the potential for money laundering.
What constitutes a TOC or FTO varies depending on who is defining them, but general definitions include:
- Terrorism is the unlawful use of violence and intimidation in the pursuit of political aims.
- Organized crime is serious crime planned, coordinated, and conducted by people working together on a continuing basis. Their motivation is often, but not always, financial gain.
A growing threat
The catenation of these two formerly distinct entities is relatively new. “In the mid-1990s, they were decidedly distinct, linked in some ways, but separated in more important other ways,” according to research conducted by Alex P. Schmid, Research Fellow of the International Centre for Counter-Terrorism – The Hague (ICCT).
Since then, the situation has evolved, taking advantage of trends, including globalization and the advent of the internet. Further, Schmid identified these four causes:
- Recruiters in Western Diasporas increasingly fish in the same pool of ethnic youth gangs and petty criminals.
- Convicted terrorists have successfully radicalized petty criminals and members of OCGs in prisons.
- Smuggling and trafficking networks and jihadist networks in sub-Saharan Africa have assumed a hybrid character.
- Government officials in criminalized states are involved in organized crime or supporting terrorism.
According to the U.S. Department of Justice, terrorists and insurgents are increasingly turning to TOC to generate funding and logistical support to carry out violent acts. While dated, the FY 2010 Consolidated Priority Organization Targets list reported that 29 of the 63 organizations, including the most significant international drug trafficking organizations (DTOs) threatening the U.S., were associated with terrorist groups.
Frequently cited terrorist organizations involved in criminal activity include: Abu Sayyaf Group (ASG), Al Qaeda’s affiliates, D-Company, Kurdistan Worker’s Party (PKK), Revolutionary Armed Forces of Colombia (FARC), Haqqani Network, and Hezbollah.
The U.S. government asserts that terrorism, insurgency, and crime interact in varied ways, including these common patterns:
- Partnership motivations and disincentives: Collaboration serves as a multiplier for both criminal and terrorist groups, while seeking special skills and joint ventures.
- Appropriation of tactics: Criminals and terrorists have similar tactics to reach their separate operational objectives.
- Organizational evolution and variation: A criminal group may transform over time to adopt political goals and ideological motivations, while terrorist groups may shift toward criminality.
According to Schmid, another way to look at the similarities of the two entities is by “distinguishing between various levels of intensity in the interactions between organised crime and terrorist groups”. He identified the following four types/levels:
- Type/level 1: A weak nexus of ad hoc, opportunistic collaboration
- Type/level 2: A regular association, tactical, pragmatic collaboration, based on common interest constellation
- Type/level 3: An alliance formation, pact-based, strategic relationship involving a mutually advantageous symbiosis
- Type/level 4: A convergence whereby both sides merge in terms of personnel, resources, logistical and/or operational activities
The role of financial institutions
As with any illegal activity, a FIs’ role in the fight against these TOC-FTO hybrid organizations is to detect, monitor, and report suspicious activity. To meet the high standard of due diligence placed on FIs, they must also be flexible enough to address evolving threats.
In fighting financial crimes committed by any combination of TOCs and FTOs, FIs should be able to rely on their fundamental AML strategies that may include:
- Ensuring that rules are tuned and optimized on a regular basis (perhaps annually), incorporating new trends, and incorporating “transition” activities, thresholds, parameters, and methodologies.
- Create or enhance “red flag” awareness programs to include transitional activities.
- Establish “sound” KYC, CIP, CDD, and EDD programs.
- Provide updated training for FIU, SAR analysts, and BSA officers to be aware of groups that appear to have transitioned and report those suspicions.
What’s more, FIs can reinforce their efforts by verifying suspicious information, because TCOs and FTOs rely heavily on the use of fictitious information. KYC information provided to a FI during account opening should undergo due diligence after establishing an account, including individuals’ names, addresses, phone numbers, IP addresses, email addresses, websites, as well as the account activity. Due diligence is a critical step in identifying the use of front companies, shell companies, shelf companies, and firms that financially represent both foreign and domestic parties.
Financial Crimes Advisory assistance
Is your financial institution looking to grow and evolve to address new challenges such as those mentioned here? At AML RightSource, our Financial Crimes Advisory practice has helped multiple financial institutions build a robust and comprehensive framework for identification and evaluation of enterprise risk, in addition to developing long-term risk mitigation strategies and the development of tailored anti-money laundering programs.