Archive for the ‘Building blocks’ Category

h1

Donor nations appear clueless about Palestinian Authority stipends to terrorists

January 5, 2014

In November, The Guardian’s Edwin Black wrote about the phenomenon of Palestinian Authority providing stipends to terrorists imprisoned in Israel.  Money Jihad did not blog about his piece at the time, because this phenomenon is already familiar to our readers (see here, here, and here), and it didn’t seem to break any news or provide any new information.

But upon rereading his write-up, Black’s explanation is so clear and striking that this is definitely worth a second look.  He makes the observation that many officials in the U.K. and U.S. are still stunningly unaware of how much of their donor aid to the PA is skimmed off for the purposes of these stipends.

Hat tip to Dr. Mia Bloom, professor of security studies at UMass Lowell, for sending this over:

How British and American aid subsidises Palestinian terrorism

US and UK taxpayers fund the Palestinian Authority, which in turn funds prisoners in Israeli jails. It’s dangerously dysfunctional

On both sides of the pond, in London and Washington, policymakers are struggling to weather their budget crises. Therefore, it may astound American and British taxpayers that the precious dollars and pounds they deploy in Israel and the Occupied Territories fungibly funds terrorism.

The instrument of this funding is US and UK programs of aid paid to the Palestinian Authority. This astonishing financial dynamic is known to most Israeli leaders and western journalists in Israel. But it is still a shock to most in Congress and many in Britain’s Parliament, who are unaware that money going to the Palestinian Authority is regularly diverted to a program that systematically rewards convicted prisoners with generous salaries. These transactions in fact violate American and British laws that prohibit US funding from benefiting terrorists. More than that, they could be seen as incentivizing murder and terror against innocent civilians.

Here’s how the system works. When a Palestinian is convicted of an act of terror against the Israeli government or innocent civilians, such as a bombing or a murder, that convicted terrorist automatically receives a generous salary from the Palestinian Authority. The salary is specified by the Palestinian “law of the prisoner” and administered by the PA’s Ministry of Prisoner Affairs. A Palestinian watchdog group, the Prisoners Club, ensures the PA’s compliance with the law and pushes for payments as a prioritized expenditure. This means that even during frequent budget shortfalls and financial crisis, the PA PA pays the prisoners’ salaries first and foremost – before other fiscal obligations.

The law of the prisoner narrowly delineates just who is entitled to receive an official salary. In a recent interview, Ministry of Prisoners spokesman Amr Nasser read aloud that definition:

A detainee is each and every person who is in an Occupation prison based on his or her participation in the resistance to Occupation.

This means crimes against Israel or Israelis. Nasser was careful to explain:

It does not include common-law thieves and burglars. They are not included and are not part of the mandate of the ministry.

Under a sliding scale, carefully articulated in the law of the prisoner, the more serious the act of terrorism, the longer the prison sentence, and consequently, the higher the salary. Incarceration for up to three years fetches a salary of almost $400 per month. Prisoners behind bars for between three and five years will be paid about $560 monthly – a compensation level already higher than that for many ordinary West Bank jobs. Sentences of ten to 15 years fetch salaries of about $1,690 per month. Still worse acts of terrorism against civilians, punished with sentences between 15 and 20 years, earn almost $2,000 per month.

These are the best salaries in the Palestinian territories. The Arabic word ratib, meaning “salary”, is the official term for this compensation. The law ensures the greatest financial reward for the most egregious acts of terrorism.

In the Palestinian community, the salaries are no secret; they are publicly hailed in public speeches and special TV reports. The New York Times and the Times of Israel have both mentioned the mechanism in passing. Only British and American legislators seem to be uninformed about the payments…

h1

Term of the week: Afghan Trade Transit

August 28, 2013

In their 2010 book, Cassara and Jorisch defined the Afghan Trade Transit (ATT) as:

A regional agreement between landlocked Afghanistan and its neighbors that allows goods to be imported into the country with preferential duties.  The trade has resulted in massive smuggling and trade fraud, and it continues to facilitate the laundering of narcotics proceeds that help finance the Taliban.

The ATT agreement has since been modified, and merchandise that passes from Afghanistan through Pakistan has diminished by 50 percent according to a recent report from the major Pakistani newspaper Dawn.  Nevertheless, Dawn’s sources say that the renegotiated treaty really only hurts normal trade, but that smuggling continues unabated:

… A customs official familiar with these developments told Dawn that including stringent clauses in the treaty were unlikely to help curb smuggling.

“Now containers imported through Iranian ports are smuggled to Pakistan through the same routes,” he said.

The only difference, the official added, was that earlier a huge number of Pakistanis were getting jobs directly or indirectly, and now they were transferred to Iran. He said: “The smuggling can only be discouraged through reducing duties on smuggling-prone items and effective surveillance of the border”…

Guess the Taliban can breathe easy again.

h1

Term of the week: trade-based money laundering

July 10, 2013

Julie Myers, the former assistant secretary of the Immigration and Customs Enforcement agency, once defined trade-based money laundering as:

The use of trade to legitimize, conceal, transfer, and convert large quantities of illicit cash into less conspicuous assets or commodities. In turn, the tangible assets or value are transferred worldwide in an effort to avoid financial transparency laws and regulations.*

Common methods of laundering money through trade are over-invoicing and under-invoicing.  If you want to transfer money to somebody, you could transfer goods to them and under-bill them.  If somebody is trying to transfer money to you, you could transfer goods to them and over-bill them.  From the outside, it appears to be a legitimate transaction.  But the parties involved know it’s a sham to transfer extra money without drawing attention to themselves from financial authorities.

 

*U.S. House of Representatives Subcommittee on Trade, 109th Congress, 2nd Session, “Customs Budget Authorizations and Other Customs Issues” (Washington:  U.S. Government Printing Office, 2007).

h1

Word of the week: BSA

May 29, 2013

The Bank Secrecy Act (BSA) is the primary law in the U.S. against money laundering.  Cassara and Jorisch* explain the BSA as follows:

Officially known as the “Currency and Foreign Transactions Reporting Act,” it requires financial institutions to help various government agencies detect and prevent money laundering.  Specifically, the BSA requires banks and other financial institutions to file reports of currency transactions exceeding $10,000, to keep records of cash purchases of negotiable instruments, and to report suspicious activity.

The IRS notes that BSA requirements serve to “detect and deter money laundering whether it is in furtherance of a criminal enterprise, terrorism, tax evasion or other unlawful activity.”

*Cassara, John and Jorisch, Avi.  On the Trail of Terror Finance (Washington, D.C.:  Red Cell Intelligence Group, 2010).

h1

Word of the week: third party

May 22, 2013

The person making financial transactions for illicit purposes isn’t necessarily the person pulling the strings.  If you work for a money services business, you should try to ascertain if your customer is operating under instructions from a third party.  This guidance comes from Canada’s FinTRAC, but it’s useful information for anybody with know-your-customer responsibilities:

Find out if there is a third party

As a money services business (MSB), you have to find out if your client is acting on behalf of a third party when you:

  • conduct a large cash transaction and you have to keep a record of it
  • have to keep a record about a service agreement

Who is a third party?

A third party is anyone else who gave instructions to your client to request MSB services from you. It is not about who “owns” the money, but rather about who gives the instructions to deal with the money.

How to find out if there is a third party

Ask the individual in front of you if they are acting on someone else’s instructions. If the answer is yes, that someone else is a third party.

Examples of a third party:

  1. Tarek wants to send money to his son Roger in Lebanon. He gives his daughter Tara $13,000 in cash and asks her to go to the MSB to send the money. Tara gives the money to the MSB and requests that a money transfer be made to Roger in Lebanon. Tarek is the third party as he is the one who gave the instructions to Tara to request that a money transfer be made.
  2. Jacques, a financial officer and employee of Voyages Inc. in Canada, goes to the MSB every month to transfer money to their head office in France. Jacques’ employer, Voyages Inc., is the third party as Jacques is acting on his employer’s instructions.

Records to keep on a third party

You have to keep a record for five years after the day you created it, if you:

  • find out that there is a third party
  • suspect that there is a third party

You find out that there is a third party

If you find out that there is a third party involved, you have to keep a record with the following information about the third party:

  • name, address and job or main business
  • if it is an individual, their date of birth
  • if it is a corporation, their corporation number and place of incorporation
  • the nature of the relationship between the third party and:
    • the individual who gave you the cash if you are doing this because of a large cash transaction or
    • the organization entering into a service agreement.

Examples of how to describe the nature of the relationship include that the third party is your client’s accountant, agent, customer, employee, friend, legal counsel or relative.

You suspect that there is a third party

If you are not able to find out that there is a third party, but you suspect that there are instructions from a third party involved, you have to keep a record to indicate the following:

  • why you suspect the individual is acting on a third party’s instructions and in the case of a:
    • large cash transaction, whether or not the individual giving the cash indicated that the transaction was being conducted on behalf of a third party
    • service agreement, whether or not the client indicated that the agreement was being done on behalf of a third party
h1

Word of the week: soft loan

April 17, 2013

Among the hundreds of requests for zakat or other financial assistance that Money Jihad has received from overseas spammers, a couple have involved requests for a “soft loan.”

In June 2011 through our “Contact us” page, Wisnu Wibowo wrote, “Asalamualaikum… I hope someone can help with soft loan” purportedly to keep him out of jail for a $2,000 debt.  Borrowing from Peter to pay Paul, it would seem.

In January of this year, somebody named Krisna Busana Karya also contacted Money Jihad demanding “grants or soft loan” with a five year term to help with an oyster cultivation business with an eye toward a growing market in Jakarta.  Tempting offer, Krisna, but no thanks.

What is a “soft loan”?

A soft loan is defined as “A loan made on terms lower than or more favourable to the borrower than regular commercial terms”.*

Soft loans are repaid with interest, but it may be at a smaller interest rate or payable over a longer term than conventional loans.  Since interest is involved, soft loans are not sharia-compliant.

Nevertheless, extending a soft loan to a borrower who cannot meet conventional terms suggests that the lender is taking on risk in excess of what the capital markets normally bear.  Therefore, soft loans are somewhat similar to sharia finance in that both deviate from fair market interest rates.  Soft loans, like sharia loans, come with strings attached, such as concessions made by the borrower.

People do not lend for free.  Reduce or eliminate interest rates, and lenders will come up with ways of recouping the costs through fees or other methods.  Is “ethical finance” truly ethical when the actual cost of borrowing is obscured by fees and special conditions, rather than a transparent, market-based interest rate that is known to both parties?

* Food and Agricultural Organization of the United Nations, Glossary of Terms for Agricultural Insurance and Rural Finance (Rome:  FAO, 1992).

h1

Wednesday word: bitcoin

April 3, 2013

Bitcoin is an online medium of exchange.  Rather than being regulated by monetary authorities, bitcoin digital currency was devised by unelected, anonymous Internet users.  Investopedia defines bitcoin as:

A decentralized digital currency that enables low-cost payments without the need for central authorities and issuers. Bitcoin is a peer-to-peer (P2P) currency system created in open source C++ programming code. Bitcoins can be accessed from anywhere in the world with an internet connection. Once a user has Bitcoins, they are stored in a digital wallet. Bitcoins can then be sent to anyone else who has a Bitcoin address. Bitcoin was developed in 2009 and based on the works of an individual or group of individuals known as Satoshi Nakamoto.

Like earlier forms of digital cash, bitcoin operates outside the conventional currency system.  It may allow for greater individual freedom in transactions, but it is difficult to trace and can be used for criminal activity such as sanctions evasion or buying contraband.

h1

Wednesday word: digital cash

March 13, 2013

Before there was bitcoin, there's the larger concept of digital cash

Julian Gaspar defines digital cash as “an electronic payment system that represents currency in an electronic format that moves outside the normal network of money”.*

Because it operates outside the conventional currency system, digital cash may allow for greater freedom in transactions.  Critics point out that transactions in such systems are anonymous, difficult to trace, and can be used for criminal activity.

* Gaspar, Julian, Introduction to Business (Boston:  Houghton Mifflin Company, 2006).

h1

Saudi Arabia funds Lashkar-e-Jhangvi

March 3, 2013

The Sunni radical Pakistani terrorist group Lashkar-e-Jhangvi (LeJ), which is responsible for attacks against Shia Muslims, is funded by Saudi Arabia.  LeJ’s parent organization, Sipah-e-Sahaba (SSP), feeds at the same trough.

From Reuters last fall:

THE SAUDI CONNECTION

In the Punjab town of Jhang, LeJ’s birthplace, SSP leader Maulana Mohammad Ahmed Ludhianvi describes what he says are Tehran’s grand designs. Iranian consular offices and cultural centers, he alleges, are actually a front for its intelligence agencies.

“If Iranian interference continues it will destroy this country,” said Ludhianvi in an interview in his home. The state provides him with armed guards, fearful any harm done to him could trigger sectarian bloodletting.

The Iranian embassy in Islamabad, asked for a response to that allegation, issued a statement denouncing sectarian violence.

“What is happening today in the name of sectarianism has nothing to do with Muslims and their ideologies,” it said.

Ludhianvi insisted he was just a politician. “I would like to tell you that I am not a murderer, I am not a killer, I am not a terrorist. We are a political party.”

After a meal of chicken, curry and spinach, Ludhianvi and his aides stood up to warmly welcome a visitor: Saudi Arabia-based cleric Malik Abdul Haq al-Meqqi.

A Pakistani cleric knowledgeable about Sunni groups described Meqqi as a middleman between Saudi donors and intelligence agencies and the LeJ, the SSP and other groups.

“Of course, Saudi Arabia supports these groups. They want to keep Iranian influence in check in Pakistan, so they pay,” the Pakistani cleric said. His account squared with that of a Pakistani intelligence agent, who said jailed militants had confessed that LeJ received Saudi funding…

A Stanford University study also said that, “LeJ has received money from several Persian Gulf countries including Saudi Arabia and the United Arab Emirates.  These countries funded LeJ and other Sunni militant groups primarily to counter the rising influence of Iran’s revolutionary Shiism,” (h/t Land Destroyer).

This is especially relevant now that LeJ’s attacks on Shias are becoming more frequent and lethal.  They just killed 81 people in Quetta and another 100 people last month.  LeJ and SSP are also gaining political representation in the Punjab and National Assembly (h/t Hayat Alvi).

h1

Wednesday word: revolutionary tax

February 27, 2013

The “revolutionary tax” is a fundraising method normally associated with Marxist movements and ideology-based terrorism.  One dictionary defines a revolutionary tax, or impuesto revolucionario, as an amount of money “a terrorist group demands from a business or wealthy person under threat of death.”*

W. A. Tupman has noted that revolutionary taxes are most often imposed by urban guerrillas to finance terrorist operations.

The inspiration for the revolutionary tax seems to trace back to Karl Marx and Friederich Engels, who once wrote that “In a revolution, taxation, swollen to colossal proportions, can be used as a form of attack against private property,” in a review of Emile de Girardin’s book Le socialisme et l’impôt (“Socialism and Taxes”).

Money Jihad doesn’t normally link to Wikipedia, but this particular entry describes the phenomenon of revolutionary taxation so succinctly and clearly that it’s a must read:

Revolutionary tax

From Wikipedia, the free encyclopedia

Revolutionary tax is a major form of funding for violent non-state actors such as guerrilla and terrorist organizations. Those outside the organization may consider it to be a euphemism for “protection money.”[1] Proponents of such groups maintain however that there is no difference between the revolutionary taxes “extorted” by given groups and corporate taxes raised by governments.

Revolutionary taxes are typically extorted from businesses, and they also “play a secondary role as one other means of intimidating the target population.”[1]

Examples

The Irish Provisional IRA and Corsican FLNC have extorted revolutionary taxes[2] as well as the following organizations.

ETA

The Basque nationalist organization ETA depended on revolutionary taxes.[3][4][5] Small to medium-sized businesses were extorted between the amounts of 35,000 to 400,000 euros each, which comprised most of ETA’s 10 million euro budget in 2001.[6]

The Philippines

In the Philippines most local and foreign companies pay revolutionary taxes to the Maoist New People’s Army. According to the army, the tax is a major obstacle for the country’s development while the New People’s Army justified it as a tax to be paid upon entering territories controlled by the rebels being a belligerent force.[7][8]

Colombia

The revolutionary taxes of Colombian guerrilla movements have become more common in the 1980s and 1990s.[9]

Nepal

The maoist guerillas of Nepal have also widely extorted revolutionary taxes.[10]

Argentina

The national socialist Argentine Movimiento Nacionalista Tacuara (MNT) demanded a “revolutionary tax” from many Jewish shops in Buenos Aires.[citation needed]

Soviet Russia

In the Soviet Russia, the Bolshevik government decreed a revolutionary tax on November 2, 1918.[11] Although the Bolshevik government already controlled the country, its opponents were still internationally recognized as the lawful rulers.

References

  1. ^ a b Detection of Terrorist Financing, U.S. National Credit Union Administration (NCUA), 2002
  2. ^ MONEY LAUNDERING AND TERRORISM FINANCING: AN OVERVIEW, Jean-François Thony, IMF.org, Seminar on Current Developments in Monetary and Financial Law Washington, D.C., May 7–17, 2002. “Money laundering and the financing of terrorism may be seen as distinct activities. … sometimes discreetly called a “revolutionary tax” (ETA, FLNC, IRA)”
  3. ^ Terrorism versus democracy: the liberal state response, Paul Wilkinson, Frank Cass Publishers, 2001, p. 70
  4. ^ Suspected ETA supporters arrested in cross-border swoop Euronews 20/06/06
  5. ^ Terror, Fires, Hail: Holiday Time in Europe, ABC News
  6. ^ Counterterrorism: An Example of Co-operation, Juan Miguel Lian Macias, Ministry of Defence of Spain, 2002-2-22: “ETA is funded mainly from one source: the money it collects through extortion of small and medium businessmen, charging them the so-called “revolutionary tax”. At present the amounts required are between 35,000 and 400,000 euros. The annual budget the terrorist organisation needs for the maintenance of its structures is estimated at around 10 million euros. Beyond the Spanish borders, ETA seeks links with similar groups and causes. Hence, it intends to gain the support of ideologically akin groups. It has or has had contacts with the Breton Revolutionary Army, with Corsican and Irish terrorist groups, with revolutionary groups from Latin America, etc.”
  7. ^ Rebels’ ‘revolutionary tax’ adds to cost of business in Philippines, N.Y.Times, October 20, 2004
  8. ^ Chapter 6 — Terrorist Organizations, Country Reports on Terrorism 2007, U.S. Department of State
  9. ^ Negotiating with Terrorists – A Reassessment of Colombia’s Peace Policy, NICOLAS URRUTIA, Stanford Journal of International Relations, vol. 3, issue 2, 2002
  10. ^ Trekking in the time of terrorism – The east is red with rhododendron and revolution, DAMBAR KRISHNA SHRESTHA, GUPHA POKHARI #243, 15.4.2005
  11. ^ Socialism: Still Impossible After All These Years, Peter J. Boettke & Peter T. Leeson, George Mason University, s. 13; Critical Review, Vol. 17, Autumn 2005

The un-cited imposition of the revolutionary tax against Jews in Buenos Aires mentioned above is documented in The War of All the People by Jon B. Perdue.

Having explained the term, the academic concept of a revolutionary tax really needs to be broadened to include religious-based revolutionary movements, especially Islamist movements.  The Islamic fundamentalist imposition of the twin sharia taxes—zakat on Muslims and jizya on non-Muslims—is an attempt to revive aspects of Caliphate-era tax law and combine them with contemporary terrorist financing tactics.  This has been most clearly illustrated in the 1990s and 2000s in Afghanistan by the Taliban, but also by jihadist groups in Pakistan and Somalia.  And such extortion has not been limited to urban centers; it has been carried out in the countryside too.

Finally, it is important to note that ETA’s longstanding and profitable revolutionary tax mentioned above has reportedly been abandoned.  If the tax on Basque and Navarran businessmen that ETA benefited from for so many years has come to an end, perhaps there is hope that one day, the Islamic terrorists can be forced to abandon their jihad tax.

VOX Media, Diccionario Escolar, 2nd Edition (London:  McGraw Hill Professional, 2011).

h1

Wednesday word: sovereign wealth funds. Your security at risk?

January 23, 2013

Time for a reprise of Money Jihad’s occasional series, the “Wednesday word.”  Let’s take a look at sovereign wealth funds, which Philip Romero defines as:

Investment funds maintained by the governments of countries that run budget surpluses, usually because the nation exports more than it imports (e.g., oil-exporting countries).  These funds act much like other institutional investors, except that their client is, directly or indirectly, a national government.*

In the 1950s, the big oil producing countries, mostly in the Persian Gulf, wanted some way of investing extra capital.  They said this would help protect them from the volatility of the oil markets.  Since then, they have acquired more and more assets around the world.  Critics have pointed out several concerns about these sovereign wealth funds:

  • SWFs can acquire important stakes in sensitive industries and sectors, ie “assets with strategic value,” as illustrated most famously by the Dubai Ports World fiasco in 2006.
  • SWFs distort markets by investing capital in pursuit of foreign policy goals rather than financial goals.
  • The funds lack transparency and accountability.
  • SWFs can carry out corporate espionage and extract technology they previously could not access.
  • Due to their massive size, SFWs have the potential to disrupt financial markets.

In addition to those concerns, Bryan Balin of John Hopkins points out:

Follow

Get every new post delivered to your Inbox.

Join 5,104 other followers