Cocaine profits made Beirut banks boom

You’ll hear a lot more in the coming months about how U.S. law enforcement exposed Hezbollah’s international narco-trafficking money laundering scheme.  But lost in the back slapping, attaboys, and high fives among prosecutors and politicians is just how much the scheme enriched the banking system of Lebanon and its Iranian partners.

New American Security senior fellow and money laundering expert David Asher discusses the details during an interesting presentation at the Washington Institute last month.  We’ll start the tape as Mr. Asher explains how used cars sold from the Americas  made their way to West Africa where the profits were mingled with illegal drug proceeds:

Treasury: We don’t expect full legal compliance

When the last banks in Minnesota stopped processing money transfers to Somalia in an effort to prevent funding of terrorism, the Minnesota politicians like Sen. Al Franken and Rep. Keith Ellison criticized the banks.

That was bad enough, but Tim Geithner’s Treasury Department (specifically, David Cohen’s Terrorism and Financial Intelligence office [TFI]) has made an even broader statement than Franken in a mostly unnoticed Treasury blog post in late-December.

In a very craftily written post, TFI policy advisor Scott Rembrandt wrote, “The Treasury Department expects financial institutions, in their compliance with the Bank Secrecy Act, to reasonably discharge their due diligence obligations — not that they be infallible in doing so.”

What Mr. Rembrandt is saying is that Treasury expects banks to do a decent job of enforcing BSA provisions, and not to implement its provisions too strictly.

It is not too far to extrapolate that the suggestion here is that banks should not adhere strictly to counterterror finance laws if such adherence could limit Somali-Americans’ ability to transfer money as they please, and that Treasury would not seek legal action or fines against banks that loosen compliance standards on international money transfers.  This position taken by TFI is troubling on several levels.

Let’s leave aside the possibility that the Muslims in Minnesota would intentionally fund terrorism (even though Amina Farah Ali and Hawo Mohamed Hassan were recently convicted of doing exactly that).

Let’s also leave aside the possibility that Muslim Somali-Americans are not trying to fund terrorism, but the relatives that they are sending money to could support al-Shabaab in Somalia.

The fact remains that many of the Muslim-Americans’ relatives in Somalia live in territory subject to forced taxation by al-Shabaab.  Al-Shabaab receives its revenues by the aggressive, coercive theft through Islamic taxes on ordinary Somali commerce along trade routes and harbors.  Whether local Somalis want it or not, and whether Muslim-Americans like it or not, the money that is remitted to Somalia stands an unacceptable risk of being given to or stolen by Al-Shaabab.

Any plain reading of the Bank Secrecy Act, the Patriot Act, and other modern know-your-customer provisions would convince even the most hard-nosed, profit-driven bank president that it simply is not legally (never mind morally or financially) acceptable to facilitate such money transfers.

Granted, modern anti-money laundering laws are onerous and often ineffective.  But for the Treasury Department to make a public statement that banks are not expected to be “infallible” on carrying out the laws which have been imposed by Congress on the financial sector is absurd.

Suppose that one of the banks in question are taken to court someday by family members of somebody who has been murdered by Al-Shabaab.  Will the victims and the judge be comforted when the bank’s lawyers quote Treasury’s blog by saying, “Your honor, Treasury told us we don’t have to be infallible”?

Oxfam condemns reluctance to fund terror

Earlier in December we learned that banks in Minnesota were ending money transfers on behalf of the local Somali community back to their home country in order to ensure that the cash wasn’t funding the al-Qaeda offshoot al-Shabaab.

Thanks to Creeping Sharia (on the Twitter side) for alerting us to the latest on this story, which is a misguided complaint by the anti-hunger charity Oxfam about the Minnesota banks’ policy.  An excerpt from the Ethiopian Review on Dec. 24:

The international aid organization Oxfam says thousands of Somali families could be cut off from much needed aid if a U.S. bank goes through with plans to discontinue its money-wiring services at the end of this month.

Last week, a small bank in the U.S. state of Minnesota announced it would stop wiring cash to “hawala” money transfer companies in Somalia because it feared the transfers risk violating U.S. counter-terrorism laws.  The laws seek to clamp down on the financing of terror groups.

Shannon Scribner, a humanitarian policy manager at Oxfam, says the support that comes from the bank is crucial and that it is one of the few still offering the service.

“Within Somalia about $100 million in remittances from the U.S. goes to Somalia every year,” said Scribner.  “And this money comes from diaspora members, who are Somalis themselves that are living in the United States, extended  families and local charities.”

The cut-off comes when more than a 250,000 Somalis are on the brink of starvation because of famine and political violence.  The al-Qaida linked terror group al-Shabab is in a deadly struggle with Somalia’s fragile transitional government.

Hawala money transfers rely on an informal system of merchants who send money, for a fee, from one location to another.  Because it is informal, the U.S. and other countries worry the hawala system can be used to funnel cash to terrorist or criminal groups.

First of all, the bank should be applauded, not condemned, for ensuring that depositors and other bank customers aren’t indirectly financing the reign of terror in East Africa by al-Shabaab.

Secondly, from a legal standpoint, the bank has a responsibility to know its customers and in whose behalf transactions are being made.   There is the bare minimum of complying with the minimal letter of federal anti-money laundering and terror finance laws, and the Minnesota bank in question has met that standard.  The bank has also surpassed that standard by gauging the spirit of the law and living up to the moral responsibility that financial institutions bear to avoid funding a culture of death and destruction by jihadists.

Also keep in mind banks like Lloyds and RBS which exercised insufficient controls to ensure that they didn’t service Iranian accounts.  Those banks got nailed with hundreds of millions of dollars in fines by the federal government for their deficiencies, and rightly so.  This Minnesota bank has every reason to believe that one day they will be assailed by the federal government for exercising insufficient controls on money transfers.  While it is unlikely that the current leadership of the Department of Justice or Treasury would go after any bank for hawala to radical Sunni-dominated territory, it is possible that a future administration would take a dimmer view of transferring money to the enemy.

Unfortunately for average Somalis, al-Shabaab is stealing the wealth of Somali citizens through Islamic-inspired taxes on everything from trade to breathing.  That is why Oxfam should direct its complaints toward al-Shabaab—the entity ultimately responsible for the humanitarian fiasco.  But if Oxfam still feels like attacking a mom & pop bank in Minnesota, it should offer constructive suggestions such as encouraging the bank to donate food aid to responsible international charities.

Considering the lack of know-your-customer practices endemic to hawala, no American bank should be forced to transfer money to hawala dealers anywhere on earth.

Weekly word: musharaka

Musharaka is the Islamic financial concept of a joint venture or equity partnership.  Two or more parties provide the capital (which distinguishes it from mudarabah, in which one party generally provides the capital and the other party manages the asset).  Because the profits and risks are shared, musharaka is considered the “purest,” or most truly Islamic, form of sharia finance.  One source offers this definition:

Musharaka is a form of partnership between an Islamic bank and its clients whereby each party contributes to the partnership capital, in equal or varying degrees, to establish a new project or share in an existing one, and whereby each of the parties becomes an owner of the capital on a permanent or declining basis and is owed its due share of profits.  Losses, however, are shared in proportion to the contributed capital.*

Musharaka can be used for home loans, often under a diminishing musharaka model in which the home buyer takes on a greater equity in the home over time, and the bank has gradually diminishing equity.  But musharaka can be applied to any project or asset:

There are several problems with musharaka.  Although musharaka is more “Islamic” than murabaha (which employs a “markup” similar to conventional interest charges), musharaka is used less often than murabaha arrangements.  Musharaka can end up costing a borrower more than a conventional loan, thus tarnishing the (false) notion that Islamic banking is more “ethical” and generous than conventional Western-style loans.  The larger profits for the Islamic banks owing to musharaka also means larger pots of money for the sharia advisors to play with.

Still, musharaka is gaining in popularity among Arab investors, and musharaka has become the primary method used to structure sukuk (Islamic bonds).

* Kettell, Brian B., Introduction to Islamic Banking and Finance (Chippenham:  John Wiley and Sons, 2011).

Weekly term: currency transaction report

A currency transaction report is a form that forfeits your privacy by turning over your address, occupation, social security number, and several other sensitive items to a cashier, bank representative, or casino employee who completes the paperwork and send it to the Feds.  This is required for every transaction over $10,000 even if the cashier doesn’t even find it suspicious!

The textbook definition is a little gentler:

A Currency Transaction Report (CTR) must be filed for each deposit, withdrawal, exchange of currency, or other payment or transfer, by, through or to a financial institution, which involves a transaction in currency of more than $10,000.*

The net result?  Some people say there has been an increase of detected financial crimes, especially money laundering, since this was enacted in the 1970s. A 1991 report said that law enforcement found the reports “extremely useful,” although no data were provided to support that assertion.

A cottage industry of software vendors sells products to financial institutions to make the forms easier to file.  Millions of people’s personal information is submitted in these reports annually to the government with little discernible evidence of successfully prevented or prosecuted financial crimes.

*Steiner, Howard and Marini, Stephen L., Independent Review for Banks:  The Complete BSA/AML Audit Workbook, (ImpactAML-INX3 Financial Press, 2008).

Murabaha markup funds sharia

Following up on last Wednesday’s post about murabaha, a typical home loan obtained through sharia finance would look something like this chart:

The bank holds the title until the borrower has paid off the loan, although some sharia bankers have even figured out ways to go ahead and transfer the title to the borrower immediately.

One question springing immediately to mind when looking at this chart and seeing “Payment of Marked Up Price (P+X)” is “what is X“?

X is often called a markup.  Kind of like, um, well, an interest charge.  Except the sharia bankers have to call it “X” or “markup” or “profit”—just so long as you don’t call it riba or interest.

But whether murabaha is halal or haram is a somewhat distracting issue.  The main problem with murabaha isn’t whether it is genuinely Islamic or an infidel copycat financial instrument.  The main problem is that X doesn’t just equal profit.

X goes into the revenues of the Islamic bank.  A portion of X is diverted into the Islamic bank’s zakat account.  X is overseen by virulent anti-Semitic and terrorist sympathizing Islamic scholars sitting on the bank’s sharia advisory board who have been documented to transfer a portion of X from their bank’s zakat fund as “charity” for jihadist militants in accordance with their Koran.

Muslims say they invented algebra, but they won’t tell you what the X really stands for in this equation.

The X, it must be said, is for sharia.

Jaw-dropping candor on the money jihad

Just when we think we’ve seen the creepiest Muslim scholar talking about money and Islam, we find another.  This guy is the most cartoonish yet.  When he starts rubbing his face lamenting the “disappearance” of money which is becoming, “electronic impulses in machines in banks, machines without minds,” I thought he would accidentally pull off his glue-on beard.

Jokes aside, be especially sure to watch the final three minutes of the video, because that is where the speaker, Imran Nazar Hosein (a Trinidad-born Islamic “philosopher“) discusses the religious obligation of Muslims to use their money for jihad.

In the segment above,  Hosein also presents a wide-eyed conspiracy theory against “the European Jews” claiming, “it is not an uncharitable statement to make—it is a factual statement—that the European Jews control the banking system around the world.”

Why is this video relevant?  1)  It helps explain the Muslim psyche and their opposition to Western banking.  It isn’t just that Western banks charge interest, the hated riba of the Koran.  It isn’t just that the Koran tells them that infidels cannot be trusted with Muslim money.  It isn’t just that the West uses paper, fiat currencies and that Muslims are transfixed by gold.  All those points are extremely important, but add their neurotic hatred of Jews to the list of reasons they seek to destroy and replace the Western banking system with sharia.

2)  The video also explains, in a very straightforward fashion, the desire of Muslim leaders and believers to contribute money to the obligatory jihad.  Hosein says at one point, “Had this not been in the Qur’an, oh they would sue me.”  Indeed…

Experts mock the whole AML/CTF model

If the IMF’s skepticism about the effectiveness of the Financial Action Task Force and the contemporary anti-money laundering (AML) system weren’t damning enough…

A separate report from the U.K.’s Financial Services Authority has shaken the very faith that AML and combating of terror finance (CTF) experts once held in the foundations of the modern system of international financial controls.

It’s about time.

It is a system that over-regulated banks, passed the expenses along to share holders who’ve endured lower returns; account holders in terms of more paperwork, intrusive data mining, lower interest rates; and to financial service employees who have had to make sense of the whole unprofitable mess.  And it’s all been in an effort to find needle-size transactions among giant haystacks of financial exchanges.

The modern AML system is very similar to contemporary airport security.  It treats everybody like a terrorist, and creates a vast bureaucracy that has never quite proved its worth.  It focuses on suspicious transactions rather than suspicious people.  It fails to profile.

The specific findings in this report are that Britain’s banks aren’t doing anything different now than they were doing 20 years ago with regard to opening accounts for corrupt foreign dictators who stole the wealth of their countries and deposited it in British banks.  All this has happened despite extensive regulations, oversight, and requirements for the British financial sector.

If one of the most advanced countries in the world with a first-class banking system cannot achieve what seems a relatively straightforward task of screening their customers and verifying their source of income, what hope can we possibly have that the banks will be able to identify and report a $10,000 transaction from Habib to Farouk so he can buy explosive materials?

The implications of the FSA report reach beyond Great Britain.  Editor Joy Geary of the Australia-based AML Magazine asked, “Does it mean that the AML/CTF framework, as currently in operation globally, is doomed always to fail?” and urged that “The damning contents of the FSA report should lead to a long and hard look at the underlying causes.”

Enough from me.  Here’s an extremely useful article from the above mentioned AML Magazine laying out what makes the FSA report so troublesome:

Reader seeks bank to fund charity

Sir, my “charity” is doing okay, but I really need bank sponsorship to take it to the next level. Please help!

Nine banks hoodwinked by IRISL

Iran, the grand Shia deceiver, managed to trick nine New York bank houses into making transactions on behalf of their shipping industry in violation of U.S. sanctions laws.  Iran is known to use its own banks and international banks to funnel money back into its nuclear programs.  At least this time they were eventually discovered, $60 million later…

From MoneyLaundering.com on June 21:

Banks Receive Praise and a Warning in Press Conference Announcing Indictments Tied to Iranian Shipper

By Brian Monroe and Kieran Beer

Banks were the subject of praise and a warning at a press conference on Monday unveiling a 317 count indictment against 11 corporations and five individuals for their alleged participation in a conspiracy involving an Iranian shipping company.

Manhattan District Attorney Cyrus R. Vance characterized nine banks as victims of deception when they processed more than $60 million of payments for the Islamic Republic of Iran Shipping Lines (IRISL) in violation of U.S. sanctions.

The banks “were not complicit in any way, but on the contrary have been very helpful” during the 14-month investigation that culminated in the indictments, said Adam Kaufmann, who is chief of the investigative division in the district attorney’s office.

And, the efforts of the nine large clearing banks to aid the district attorney’s investigation were “very aggressive and very sophisticated,” according to Adam Szubin, director of the Office of Foreign Assets Control (OFAC), the U.S. Treasury Department agency tasked with managing U.S. economic sanctions, who also took part in the press conference.

But Vance added that “to the extent there are banks that are banking sanctioned entities or not paying enough attention, this indictment is a continuing indication that our office and OFAC are watching carefully and will take action when we see intentional, pervasive efforts to violate federal and state law.”

IRISL and 15 others set up shell companies in Singapore, the United Kingdom and the United Arab Emirates in order to fool major New York-based dollar clearing banks into processing about $63 million in transactions, according to the indictment.

More bank robbery by the mujahideen

First, some examples to set the table:

• North Carolina jihadist Daniel Patrick Boyd said it was okay to rob from infidels.
• Anwar al-Awlaki, an imam who has studied Islam his whole life, agrees entirely, and urged all Muslims living in the West either steal money from their hosts by welfare scam shakedowns, outright theft, or both.
• Islamist rabblerouser George Galloway endorsed this position as legitimate under Islam.
• The fundraising circle of the mastermind behind the Bali bombing also believed that they were fulfilling the requirements of Islam by robbing banks to fund jihad.
• We’ve also seen the bombing of banks in Turkey, the seizure of banks in Iraq, and bank heists perpetrated by armed Hamas security personnel.

And now for the latest from India’s Hindustan Times (h/t RoP), where the Indian Mujahideen and the Student Islamic Movement of India are following the commandments of Allah, Muhammad, and their hearts by robbing from, in their eyes, valid kaffir targets:

Operation Vijay — the crackdown on the Indian Mujahideen (IM) and the outlawed Student Islamic Movement of India (SIMI) — has had an unexpected fallout. Five bank robberies have been solved by the Madhya Pradesh Anti Terrorist Squad (ATS). Eight arrested men have confessed to robbing two banks in Dewas and one each in Itarsi, Jaora and Piplyamandi, said ATS officers. The robberies were meant to raise funds for a regrouping of the IM — recruiting new members, renting new hideouts, holding meetings, training youths and publication of literature, said Vipin Maheshweri, inspector general, ATS.

The ATS had made the arrests on Sunday. Four of the men were arrested from the Habibganj railway station in Bhopal — Abu Faizal, Ikrar, Mehboob and Ezazuddin. Four others were held during a raid in Jabalpur —Shaikh Mujeeb, Aslam, Habeeb and Sajid.

On Monday, a local court remanded Faizal, Ikrar, Mehboob and Ezazuddin in the custody of the ATS till June 17. A team of National Investigating Agency (NIA) will be in Bhopal by Tuesday to interrogate the men in connection with several other cases.

Raids are also being conducted to get evidence of the IM’s regrouping, said ATS officials.  The ATS and intelligence agencies in Gujarat, Maharasthra, Uttar Pradesh and Rajasthan have been alerted.

The Uttar Pradesh ATS has been alerted about the regrouping of SIMI activists on the basis of information collected from one Zakir Hussain, who was arrested near the Rathlam railway station on Friday.

A surveillance of Hussain’s telephonic conversation with operatives of SIMI and the IM revealed that the groups had started holding meetings in Uttar Pradesh and other states. Two diaries recovered from him contained lists of their new recruits, said an intelligence official.