In past articles, we have discussed the tactics, techniques and procedures used by transnational organized crime (“TOC”) and foreign terrorist organizations (“FTO”); however, we have yet to discuss the alliance between the two, including the role the financial industry plays.
It is well-known in the law enforcement and intelligence communities, as far back as the 1970s and 1980s, that there are instances where a nexus exists between TOCs and FTOs. The term “narcoterrorism” is evidentiary of such a union. Nevertheless, most people still see the two as inherently separate, unrelated concepts with no relationship. The common perception is that organized crime is committed for personal profit, and terrorism results from a radical ideology perpetuating violence under the umbrella of waging political mayhem. Over time, scholars have analyzed the overlap between the two, and in numerous instances, not only did a nexus exist but also there was evidence of hybrid groups operating together with varying levels of coordination.
Scholars have identified two groups of TOCs and FTOs – Crime and Terrorism, and Pure Crime and Pure Terrorism. Over time, onetime state funded FTOs may transition from state funding to a blended approach that utilizes both crime and state funding. In such instances, it is evident that financial institutions should adapt to identify these activities accordingly. The ability to recognize this “transition” and accurately report suspicious activity is the focal point of our discussion in this article.
The transition is facilitated by mutual interests and alliances formed to further the objective of obtaining funds. According to the Federal Bureau of Investigation (“FBI”) TOCs regularly engage in strategic alliances with FTOs to provide goods and services and become involved with parallel types of illegal activity. The FBI identifies multiple types of crime TOCs may engage in, including but not limited to “drug trafficking, human smuggling and trafficking, money laundering, firearms trafficking, illegal gambling, extortion, and counterfeit goods.” TOC groups “are typically insular and protect their activities through corruption, violence, international commerce, complex communication mechanisms, and an organizational structure exploiting national boundaries.” TOCs and FTOs share similar clandestine requirements, methodologies and a need for sophisticated technological measures.
Examples of the ties between TOCs and FTOs are numerous across the world. One good example of this alliance became public in February of 2018. According to the Italian Guardia di Finanza, a law enforcement agency under the authority of the Minister of Economy and Finance, revealed that the Mafia in the province of Calabria, known as Ndrangheta, is selling the drug Tramadol to ISIS. The Counter Extremism Project (“CEP”), a global initiative to expose the architecture of support for extremist groups and their ideologies, wrote a related article with greater details of the use of tramadol by ISIS. The CEP detailed that ISIS prefers the use of Tramadol rather than other opioids, which are used to “pump up fighters”. The Project further stated that the pills also “end up in the hands of the desperate in Gaza, the prostitutes in Amman, and child laborers in Turkey, as it is the drug for anyone wanting to escape misery.”
Here in the United States, a second example was Project Cassandra, which occurred on December 21, 2017. According to the Washington Institute, a Center for Middle East Studies, the Drug Enforcement Administration (“DEA”) targeted a global Hezbollah network responsible for the movement of large quantities of cocaine in the United States and Europe. The project, which started in 2008 and involved 30 law enforcement agencies, discovered a $1 billion per year operation involving weapons, drug trafficking, and money laundering, used to fund Hezbollah.
A report authored by Dr. Louise Shelley and published by Transparency International Deutschland eV, discusses how the alliance between TOCs and FTOs function:
“Terrorism is increasingly functioning as a business dependent on criminal organizations and facilitated by corruption. Terrorists, like legitimate business people, increasingly seek a product mix. To generate profits, terrorists trade in arms, persons, drugs, cigarettes, antiquities, as well as natural resources such as gold, precious metals, stones, minerals, wildlife, charcoal and oil. They also need professional services. Expert facilitators allow terrorists to engage in cost-benefit analyses, monitor supply chains and seek strategic alliances. Professional facilitators move the illicit proceeds of terrorists’ criminal activity through the international financial system to hide their profits.”
In short, authorities and scholars see an amalgamation of methodologies, techniques and even shared financial expertise to facilitate financial crimes in a conjoined effort between TCOs and FTOs, which in return requires an equal ability within the financial industry to recognize them.
What Recourse do Financial Institutions (“FIs”) Have?
Every criminal act mentioned in this article is identified as a predicate offense to money laundering. FIs are required to detect, monitor and/or report such suspicious activity and are uniquely situated to fulfill this requirement. Knowing that a high standard of due diligence is placed on the FI, it must also be flexible enough to evolve with the threats posed against the financial system. The act of transitioning increases the number of actors involved, which provides the FI with additional opportunity to detect the illicit activity. From a law enforcement and intelligence community perspective, the more people involved in a criminal operation, the easier it becomes to detect and catch the criminals.
The first recommended step to be taken is for banks to review the following four fundamental areas for their effectiveness:
- Ensure that your rules are tuned and optimized annually, incorporating new trends, and incorporating “transition” activities, thresholds, parameters and methodologies
- Create or enhance your “Red Flags” awareness program to include transitional activities
- Establish sound KYC, CIP, CDD, and EDD programs
- Provide updated training for your FIU, SAR Analysts and BSA Officers to be aware of groups that appear to have transitioned and indicate accordingly in reporting when suspected
Secondly, one specific practice has proven to make a significant difference in identifying transitional activities. We know that TCOs and FTOs both excel at the use of fictitious information. If it has a value, verify it! KYC information provided to a FI during account opening, such as individuals’ names, addresses, phone numbers, IP addresses, email addresses, websites, as well as the account activity after establishing an account must undergo due diligence. It cannot be expressed enough to exalt due diligence in the verification of information. This is particularly germane to identifying the use of front companies, shell companies, shelf companies, and firms that financially represent parties and are either domestic or foreign. The additional fifth pillar “Beneficial Ownership” speaks to the need for due diligence in truly knowing who you are banking with and must be taken seriously.
What can the Financial Crimes Advisory practice do to help?
Is your financial institution looking to evolve into the future? 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.