Money Laundering Finances Terrorism

Countries of the Middle East and Central Asia are taking steps to meet the challenge

UNIPATH STAFF

The Lebanese Canadian Bank reached a $102 million settlement with the U.S. government in June 2013 concerning allegations the bank helped launder drug money and other funds. [REUTERS]
The Lebanese Canadian Bank reached a $102 million settlement with the U.S. government in June 2013 concerning allegations the bank helped launder drug money and other funds.
[REUTERS]
The money came from the sale of South American cocaine in the increasingly lucrative European market. The hundreds of millions of dollars were then used to purchase motor vehicles in the United States for shipment to Africa. Once the cars were sold in Africa, the laundered money was deposited in Lebanese financial institutions, and eventually much of it was funneled to terror and criminal groups in the Middle East.

This plot, uncovered and shut down in 2011 and 2012 by international investigators, provides a telling glimpse into the mechanisms of a massive global money-laundering problem responsible for much of the funding of international terrorist groups and violent criminal organizations.
The United Nations estimates that $800 billion to $2 trillion is laundered each year, accounting for 2 to 5 percent of the world’s gross domestic product. According to the United Nations Office on Drugs and Crime (UNODC), the laundered proceeds of drug trafficking have directly financed terrorist attacks, including the 2004 Madrid bombings that killed 191 people and wounded more than 1,800.

Government, law enforcement and military leaders in the Middle East and Central Asia are actively working together to combat the threat posed by these large quantities of often untraceable cash, especially in countries with active insurgencies and frequent terrorist attacks. And they are studying cases such as the massive money laundering plot uncovered in Lebanon, the brainchild of Lebanese-born international drug smuggler and terror financier Ayman Joumaa.

Joumaa is accused of smuggling 89,000 kilograms of South American cocaine and nearly $1 billion in cash in a network that reached from the tri-border area in Paraguay, Brazil and Argentina, north to Mexico and the United States, and overseas to Africa, Europe and the Middle East. To hide the origins of the drug money, Joumaa and his associates purchased used cars in the U.S. and exported them to West Africa. In Africa, with the assistance of Benin-based criminals, money from the automobile sales was further commingled with drug profits.

After Joumaa’s former money-laundering partner, the Lebanese Canadian Bank, was shut down in 2011, U.S. treasury officials said Kassem Rmeiti & Co. for Exchange and Halawi Exchange Co. assumed that role in Joumaa’s global narcotics network.

Joumaa relied on a network of Lebanese immigrants, mainly businessmen, to shift money and drugs, a December 2011 story in The New York Times noted. Some of the money and cocaine have benefited Mexico’s murderous Los Zetas drug cartel.

“From a trafficking standpoint, the émigrés were in the right places at the right time,” The New York Times wrote. “As demand increased in Europe and the Middle East, the cartels began plying new routes — from Colombia, Venezuela and the lawless frontier where Brazil, Paraguay and Argentina meet, to West African countries like Benin and Gambia. From there, drugs moved north through Portugal or Spain, or east via Syria and Lebanon.”

A 272-page report issued by the UNODC in 2012 points to the scale of the problem. In addition to the terrorism threats posed by the billions of dollars in illicit cash, the funds also are used to corrupt public officials, foment unrest and destabilize governments.
“In recent years we have seen several such cases in which ministers and heads of national law enforcement agencies have been implicated in drug-related corruption,” the UNODC report said.

Kuwaiti bankers leave the first conference on combating money laundering and the financing of terror, held in Kuwait City in 2004. In the decade since the conference, business and government leaders in the Middle East have stepped up cooperation in combating the security threat posed by international money laundering.  [REUTERS]
Kuwaiti bankers leave the first conference on combating money laundering and the financing of terror, held in Kuwait City in 2004. In the decade since the conference, business and government leaders in the Middle East have stepped up cooperation in combating the security threat posed by international money laundering. [REUTERS]
Fighting money laundering
Governments in the region have banded together in international partnerships to curtail this threat to security and stability.

The Middle East and North Africa Financial Action Task Force (MENA-FATF) conducts regular reviews of the programs in that region’s 18 nations. Audits are frequently carried out with cooperation from the World Bank and the International Monetary Fund (IMF).

The Money Laundering Bulletin, an international online newsletter, reported in 2012 that “over the past decade, governments in the Middle East and North Africa (MENA), as well as in Afghanistan and Pakistan have all adopted Financial Action Task Force (FATF) recommendations, established Financial Intelligence Units (FIUs) and cracked down on money laundering.”

“To have an FIU with depth and experience takes years. What the region has achieved so far is quite remarkable,” Abdel Hafiz Mansour, secretary for Lebanon’s Special Investigation Commission told the Money Laundering Bulletin in 2011. “No country is developing something on its own, but the region is participating through MENA-FATF in discussions on all the issues under consideration and is catching up with any developments in international regulations. Every day there is more, not less compliance.”

In Central Asia, the Eurasian Group on Combating Money Laundering and Financing of Terrorism, known as EAG, is a FATF-style regional body with members from Kazakhstan, the Kyrgyz Republic, Tajikistan, Turkmenistan and Uzbekistan. EAG evaluates the national anti-money laundering/anti-terror-financing systems of member states and offers technical assistance and training to members.

The two FATFs provide the most reliable assessment of how countries in the region are handling the threats posed by money laundering and terrorism financing.

Sheikh Fahad bin Faisal Al Thani, deputy governor and chairman of Qatar’s National Anti-Money Laundering and Terrorism Financing Committee, emphasized that money laundering and terrorism financing has become a global priority.

“Because of its negative effects and great risks on people or the security and stability of nations and economies, these crimes force us today to create a great deal of cooperation and coordination,” Al Thani said at a three-day meeting of MENA-FATF officials in Doha in December 2013. “These crimes are no longer a local issue confined within the limits of a state but have exceeded that and become the goal of the entire international community.”

At the same meeting, Adel Hamad Al-Qulish, the Saudi executive secretary of MENA-FATF, explained that the group completed several studies on combating money laundering and terror financing in the region. Some of the topics include payment methods across borders, trends in money laundering and terror financing and the relationship between money laundering and drug trafficking.

“The importance of these studies is to highlight the methods, techniques and patterns related to money laundering and terrorism financing in order to draw the attention of member states to the importance of combating these crimes,” Al-Qulish said.

Here is a glimpse at the challenges and steps being taken by selected nations of the Middle East and Central Asia:

Afghanistan
Afghanistan’s national government operates the Financial Transactions and Reports Analysis Center of Afghanistan with some success. In 2009, allied governments in Afghanistan bolstered the International Security Assistance Force’s efforts on the ground by forming the Afghan Terror Finance Cell (ATFC). It was designed to deprive the Taliban of money, much of it profits from opium and heroin sales, to finance an insurgency. “In partnership with specially-vetted Afghan police units and the Afghan military, the AFTC has collected tens of thousands of financial documents from financial institutions to include hawalas,” the U.S. Drug Enforcement Administration announced in recognition of the ATFC achievements in 2012.

Bahrain
Bahrain has one of the most respected anti-money laundering programs in the region, having been certified in an audit by MENA-FATF as compliant or largely compliant in all categories. That success comes in large part because the Bahrain Monetary Agency (BMA) has authority over all financial institutions in the country, including money changers. The BMA’s Anti-Money Laundering Unit (AMLU) is a police-type organization that carries out investigations and enforces court orders. This system ensures that enforcement of financial laws is a priority. According to the Money Laundering Bulletin, the AMLU can seize assets with a court order and, in certain critical cases, may do so on its own authority for up to three days. That power is crucial in stopping sophisticated plots that often unfold quickly in an era of instant wire transfers. Banks and other financial institutions in Bahrain are obligated by law to report suspicious transactions to the BMA.

Iraq
The governments of Iraq and the United States continue to work together to strengthen Iraq’s ability to combat money laundering and curb terrorist financing. In a meeting of the Iraq-U.S. Joint Coordination Committee on Law Enforcement and Judicial Cooperation held in Baghdad in June 2013, delegations from the two countries emphasized the importance of continued cooperation in law enforcement and judicial matters. But Iraq still faces serious challenges to build a secure financial system. A 2012 report by the Money Laundering Bulletin found that something as simple as a lack of bank branches around the country can impede efforts to combat money laundering. “[T]here are just 853 bank branches for a population of more than 30 million. To achieve the same bank branch per capita ratio of neighboring Jordan, Iraq would need more than 3,000 branches,” the Bulletin reported. The lack of banks creates a cash economy in many parts of Iraq, making it easier for malign actors to hide financial activities.

Jordan
While money laundering is not considered a major problem in Jordan, the government has enacted a comprehensive anti-money laundering (AML) system in the past decade. Numerous new laws passed since 2001 are enforced by the Anti-Money Laundering Unit of Jordan’s FIU, part of the Central Bank of Jordan. A 2013 audit by MENA-FATF praised the kingdom for quickly correcting “technical shortcomings” in its AML programs and removed Jordan from its monitoring process. While the audit did not find evidence of significant prosecutions or convictions for money laundering or terror financing, the authors were satisfied with the scope of Jordan’s pursuit of financial irregularities, including the hiring and training of extra staff.

Kuwait
In one recent attempt to close loopholes in the regional struggle against violent extremism, Kuwait passed an AML law in April 2013 that provides for stiff fines and imprisonment for terror financiers. The new law sets prison terms of up to 20 years for money laundering crimes if the violators are deemed terrorists. The legislation also allows confiscation of all funds tied to a case. A 2011 audit carried out for MENA-FATF by the IMF found that money laundering and terrorism financing do not pose a serious threat to the Kuwaiti economy and found no evidence of significant money laundering in the country. But auditors expressed concern that rapid growth in Kuwait’s financial sector could create a “suitable environment for money launderers and terrorist financers to exploit.” The audit encouraged Kuwaiti leaders to strengthen laws and establish an independent FIU with adequate powers to monitor and ensure anti-money laundering/counter terrorism financing compliance.

Turkmenistan
Turkmenistan is an example of a country that improved the way it tackled money laundering. After languishing on the agency’s “high risk and non-cooperative jurisdictions” list, Turkmenistan successfully implemented AML legislation. In June 2012, the FATF acknowledged that Turkmenistan had made “significant progress.”

United Arab Emirates
In January 2012, UAE officials uncovered the largest money laundering plot in Emirates’ history. State security forces foiled a plan to smuggle 94,410 kilos of gold and millions in cash into the country, according to a report by the Emirates News Agency. The gang planned to smuggle the gold into the country in oil tankers arriving from Africa, then channel it though the banking system and transfer the funds to a number of Middle Eastern countries, the news agency reported. The plot was confirmation that despite vigorous detection and enforcement of money-laundering protocols, the UAE remains vulnerable to such activity because of its position as a primary transportation and trading hub for the region and its role as a major international banking center. With its large number of resident expatriates — up to 85 percent of the population — UAE also has to monitor the voluminous remittances heading to those workers’ homelands. Nevertheless, in its latest audit, MENA-FATF lauded the Emirates’ efforts to enforce money-laundering and terror-financing laws.

Sources: MENA-FAFT mutual evaluations; EAG-FAFT mutual evaluations; U.S. State Department 2013 International Narcotics Control Strategy Report; Money Laundering Bulletin; The New York Times

Spotting a Terror Financier

The Middle East and North Africa Financial Action Task Force issued the following guidelines to spot money being diverted to terrorist groups. Watch for:

  • A person who transfers several cash amounts overseas or receives cash from abroad
  • Someone who provides limited or incomplete data, such as concealing his home address or giving an inoperative phone number
  • People participating in cash operations who have a common address
  • A variety of people depositing money in one account
  • A person who executes several transactions on the same day in different branches without clear justification
  • Deposits that are followed quickly by money transfers

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