FinCEN pooh-poohs knowing your customer

A federal financial crime agency has issued a statement imploring banks to continue or resume doing business with money services businesses (MSB’s)—many of which are hawala companies—despite the risks of hawala financing domestic and international terrorism. FinCEN’s statement stems in large part from pressure brought to bear by Democratic politicians, Somali activists, and well-meaning but misguided international charities who believe that remittances are an effective channel for humanitarian relief to corruption-plagued hot zones abroad. These parties fail to understand that remittances are fuel to the fire in places like Somalia where remittances are siphoned off by al-Shabaab to perpetuate the cycle of violence and misery in that country.

In the statement, FinCEN even goes out of its way to instruct banks that they do “not need to know the MSB’s individual customers” to remain compliant with know-your-customer provisions of the Bank Secrecy Act. This instruction seems at odds with years of federal regulatory admonitions for banks to know their customers.

Financial crimes analyst Kenneth Rijock does a wonderful job picking apart FinCEN’s pronouncement, posing the following observations about MSBs:

1. They are frequently used by both money launderers, and terrorist financiers. This is a sad fact of life; laundrymen know that many MSBs are storefront operations, poorly run, and who would consider  accepting dirty money, to earn a handsome profit.
2. They exist in jurisdictions where regulatory agencies are either non-existent, or unable or unwilling to enforce AML/CFT laws. Therefore, the MSB has no reason to have an effective compliance program.
3. They may be actually owned, or controlled by, criminal elements; Look at Mexico.
4. They are not like licensed financial institutions, the licensing requirements are often minimal, and corrupt government agencies, once paid off, are usually eager to qualify individuals who are unacceptable as NBFI operators.
5. If a client cannot go to a bank in his or her jurisdiction, to send larger amounts of funds, it is often because their dodgy business is not wanted at legitimate financial institutions.
6. MSBs in many countries are known for dysfunctional AML programs. Can we really expect US banks, who are held to best practices standards, to risk accepting money from them ?

Read Rijock’s full analysis here.

U.S. Bank backs out of Dahabshiil deal

Minnesota banks stopped providing remittance services to Somalia in late 2011 over concerns about the risks of terror finance and money laundering. U.S. Bank, a subsidiary of U.S. Bancorp, considered a partnership with Dahabshiil to reinstate money transfer services to Somalia, but cancelled those plans earlier this year.

Minnesotans for a Fair Economy reported in April that:

U.S. Bank officials informed representatives of Minneapolis-based Dahabshiil, a Money Service Business (MSB) that serves the Somali community, that it would not conduct remittances to Somalia…

Community leaders have met with U.S. Bank officials many times since the last Minnesota bank ceased conducting the transactions. Such a meeting took place just two weeks ago.

“On behalf of our community, I am very disappointed by this decision to back out of our agreement,” said Mohamed Nor of Dahabshiil.

U.S. Bancorp explained its decision by saying, “”Unfortunately, because of some items identified in the independent review of Dahabshiil and the inherent risks of doing business in Somalia, we are not able to open an account as we had hoped.”

U.S. Bancorp should be applauded for its sensible decision. There are simply too many questions about the financial relationship between Dahabshiil and the terrorist group al-Shabaab to proceed with business partnerships between Dahabshiil and Western financial institutions.

J.P. Morgan to Saudi banksters: buh-bye!

Fed up with a lack of transparency and flimsy know-your-customer policies, J.P. Morgan has severed ties with the Saudi-based Al Rajhi bank.  The sharia bank, whose founder was named in the Golden Chain list of Al Qaeda benefactors, has provided financial services for East Africa embassy bomber Mamduh Mahmud Salim, Al Qaeda leader Ayman al-Zawahiri, and dangerous Wahhabi organizations like Indonesian Kompak and the Al-Haramain foundation.

Thanks to Sal for sending this over from Bloomberg:

JPMorgan Said Cut Tie to Saudi Bank Amid Focus on Control

JPMorgan Chase & Co. (JPM) dropped Al-Rajhi Bank, the world’s largest Shariah-compliant lender, as a correspondent banking client amid a push to improve risk controls, said two people with direct knowledge of the move.

The relationship with Saudi Arabia’s biggest publicly traded bank ended Dec. 31 because JPMorgan couldn’t get enough information on where payments in dollar-clearing services for Al-Rajhi had originated, said one of the people, who requested anonymity because the decision wasn’t public.

JPMorgan said it cut off the service to about 500 foreign lenders last year as regulators press the world’s biggest banks to verify that transactions are used for legitimate business. The crackdown seeks to halt funds tied to money laundering, terrorism and countries covered by economic sanctions. Correspondent accounts allow lenders to take deposits or make payments on behalf of foreign institutions.

“JPMorgan has to be extra careful to make sure they’re adhering to standards and not even approaching anything questionable,” said David Kass, a professor at the University of Maryland’s Robert H. Smith School of Business.

The two banks haven’t been cited by U.S. regulators for involvement in illegal money transfers. Tasha Pelio, a JPMorgan spokeswoman, declined to comment on clients of the company, which is based in New York and ranks as the nation’s largest lender by assets. A spokesman for Al-Rajhi (RJHI) didn’t respond to inquiries, and there was no response to messages sent to the firm’s Riyadh headquarters.

Biggest Holders

Al-Rajhi, founded in 1957 by billionaire Sulaiman Al Rajhi, had 9,000 employees and about 500 branches in Saudi Arabia, Jordan, Malaysia and Kuwait, according to a January 2012 media kit. Members of the Al Rajhi family, one of Saudi Arabia’s richest, are the biggest shareholders of the company, which had $74.6 billion of assets on Dec. 31, according to data compiled by Bloomberg. Shariah-compliant financial firms provide products adhering to Islam’s ban on interest.

The U.S. Office of the Comptroller of the Currency ordered JPMorgan to improve anti-money-laundering efforts last year, finding that its controls tied to the Bank Secrecy Act were inadequate. The firm failed to find out enough about banking customers and identify suspicious activity, according to the January 2013 consent order. The Bank Secrecy Act requires firms to report all large cash deposits to help prevent crimes such as drug-trafficking and terrorist financing…

Fourth Somali sentenced in terror cash case

Ahmed Nasir Taalil Mohamud, a taxi cab driver in California, has been sentenced to six years in prison for transferring funds overseas to the terrorist group al-Shabaab.  His fellow conspirators–another cabbie, an imam, and a hawala dealer–were sentenced to longer terms previously.

Money Jihad readers will recall that this case illustrates how the Somali remittance industry is fraught with the constant risk of funding al-Shabaab.  U.S. and British banks that have ceased doing business with Somali hawala houses like Shidaal Express, Qaran Financial Express, and wire services companies such as Dahabshiil, are well-justified if not required by anti-money laundering and know-your-customer requirements to sever such ties.  The humanitarian benefits of sending money to Somalia are far outweighed by the high probability that the money will be directed to, diverted by, or extorted for al-Shabaab to buy weapons and carry out operations that ultimately harm more Somalis than such money helps.

U-T San Diego reports (h/t Arun Hindu):

Final sentence in Somali terror case

By Kristina Davis, Jan. 31, 2014

SAN DIEGO — An Anaheim cabdriver who raised funds to aid terrorists in his war-torn homeland of Somalia was sentenced Friday to six years in prison, where he will join three other San Diego Somalis who were sentenced in the scheme two months ago.

Ahmed Nasir Taalil Mohamud, 38, played the most minor role among the four men, said U.S. District Judge Jeffrey Miller.

Prosecutors say Nasir raised about $1,000 from other cabdrivers in Orange County to send to al-Shabab fighters, who are using violence to try to overthrow the East African country’s transitional government.

The fundraising was coordinated by Basaaly Moalin, a San Diego taxi driver in contact with al-Shabab overseas.

Moalin, a naturalized U.S. citizen, was given 18 years in prison — the longest term — when he was sentenced in November.

Mohamed Mohamed Mohamud, who used his influence on the local Somali community as a City Heights imam, got 13 years. Issa Doreh, who worked at a money transfer business the men used, received 10 years.

The men have already served three years and will be required to serve at least 80 percent of their terms.

Even though Nasir’s role was minor, Assistant U.S. Attorney William Cole said in court that Nasir and Moalin were talking about real people’s lives when it came to what the money would be used for.

“It was a serious offense,” Cole said.

Nasir and Moalin met years earlier in St. Louis, where Nasir had moved to work as a cabdriver, said his lawyer, Thomas Durkin. They then moved to California, where they could make more money…

Financial mischief: recommended reading

• “We should bleed America economically,” says Zawahiri…  more>>

• It was a lot of fun laundering $1.4 million for terrorist guerrillas, until he got caught… more>>

• The Muslim Brotherhood created international sharia-compliant finance, and still controls it… under Saudi supervision.  More>>

• If Muhammad Atta II waltzed into SunTrust today, would he qualify for a bank account?  More>>

• Uzi Shaya could prove to be a crucial witness in the terror finance trial against the Bank of China—if Israel lets him testify… more>>

Financial data mining yields no gold nuggets

Financial privacy is becoming a fading memory of the past due to aggressive regulations by Western governments that require bankers to serve as snitches against their own customers for transactions that may or may not be criminal in nature. These regulations are costly for the banks to comply with (costs which are ultimately passed on to customers), and they carry a price for citizens’ privacy as well.

All that might be forgiven if the invasive policies actually result in stopping terrorists, their financial transactions, or their operations.  But according to new research being conducted in the European Union, the results of such programs are “meager and sometimes debatable.” The government holds the data while you’re left holding the bag.

A tip of the hat to Andrew S. Bowen for sending this over:

Terrorism financing barely traceable using data analysis

28 August 2013

Doctoral research by Mara Wesseling has shown that the data analyses being performed as part of the European fight against terrorism financing are of little use for preventing terrorism. Wesseling will receive her doctorate from the University of Amsterdam (UvA) on 3 September.

Immediately following the terrorist attacks on 11 September 2001, the European Union created the EU Action Plan for Combating Terrorism, which included action against terrorism financing as a ‘core component’. Politicians, policymakers and legal experts stress the importance of combating terrorism financing, as they see money as a crucial element in the propagation of terrorism. Specific programmes have been set up to address the problem.

‘My research shows that it cannot yet be demonstrated whether these programmes have had much success with regard to tracking down suspected terrorists or preventing terrorist attacks. In light of the meagre and sometimes debatable results of both programmes, the question arises whether the social and political changes instituted as part of the data-analysis-driven fight against terrorism are (still) desirable or justified,’ Wesseling says.

Terrorist Finance Tracking Program

In her research, Wesseling analysed the Terrorist Finance Tracking Program (TFTP – better known as the SWIFT programme in the wake of the ‘SWIFT affair’) and the Third European AML/CFT directive. These two programmes constitute the most significant initiatives in the European fight against the financing of terrorism.

It has been shown that risk analyses carried out by banks as part of the Third European AML/CFT directive have revealed virtually no patterns that point to terrorism financing. Wesseling goes on to say that the preventive power of the TFTP to detect terrorist networks at an early stage is also limited…

Chase assesses risk, closes suspected accounts

Banks have a responsibility under federal law to deny account services to customers who are at risk for funding terrorism, money laundering, or evading economic sanctions.  Banks can’t allow customers to send money to countries that lack safeguards against such activities either.

Accordingly, JPMorgan Chase has closed an unspecified number of accounts that are at risk for abuse or criminal behavior by customers who are, according to the Michigan chapter of the Council on American-Islamic Relations, Muslims or Arabs.

The Arab-American Civil Rights League also alleges 50 “improper” account closures by banks such as Flagstar, Charter One, and Comerica.

Opponents of such bank closures would be better served by proposing changes to federal law rather than threatening lawsuits against banks that are simply carrying out their duties under the existing rules.

From the Detroit News:

Muslim, Arab-American groups say banks closing accounts without explanation

• Mark Hicks, June 13, 2013

Two groups are seeking answers to what they say is a growing practice of Muslim and Arab-American groups having their bank accounts closed without cause or explanation.

The Council on American-Islamic Relations–Michigan is asking the Office of the Comptroller of the Currency, part of the U.S. Department of the Treasury, to investigate the complaints and the Arab-American Civil Rights League in Dearborn is pursuing a lawsuit against major banks.

“We see a type of pattern taking place in the Muslim/Arab community,” Dawud Walid, executive director of CAIR–MI, said Wednesday. “Bank accounts are being closed with no real justification … so it appears on the surface that there could be some sort of bias involved.”

One of the latest reported incidents, according to CAIR–MI, involved Alif Arabic, a business described as teaching Arabic to American citizens online. Officials there were notified May 30 by JPMorgan Chase their bank account would be terminated within 10 days. JPMorgan Chase officials did not detail why, according to the letter.

When an Alif Arabic employee asked the bank for clarification, they were told an analytical tool “alerted them that Alif’s account could pose a possible risk,” the letter read.

Walid said such a move could suggest discrimination based on religion and ethnicity. “We need answers and the bank is not giving answers,” he said.

Emily Smith, a JPMorgan Chase spokeswoman, said privacy reasons prevent the company from discussing details of its customer relationships. However, “on occasion, Chase determines it can no longer maintain a customer’s account but those decisions are not based on the customer’s religion, ethnicity or any other similar basis.”

Bryan Hubbard, a spokesman for the Office of the Comptroller of the Currency, said: “We have just become aware of the letter and have not had a chance to review. We will look into these allegations.”

Meanwhile, the Arab-American Civil Rights League plans to file a lawsuit after nearly 50 incidents of individual and business accounts being closed.

The group earlier this year asked the U.S. Department of Justice to investigate and launched a hotline for complaints after some area residents were notified by Huntington National Bank and other institutions their accounts were terminated without explanation.

That affected professionals and others who believed they acted lawfully, said Nabih Ayad, the league’s board chairman.

“It’s just a shame this continues to happen. It’s not fair to the community,” he said. “These sort of circumstances, they’re basically telling Arab Americans: ‘You’re not at the same level or beneath the average American”…

H/t to Creeping Sharia for sending this over.

Word of the week: BSA

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).

Clandestine finance news: recommended reading

• It took Kuwait 12 years after 9/11 to outlaw the financing of terrorism. That was still faster than Sweden…  more>>

• A Dubai subsidiary illegally transfers software to Syria, and incurs the second biggest fine in the history of export control… more>>

• Bitcoin‘s sales pitch was based on freedom from regulation. Not so fast, say the feds… more>>

• The Global Muslim Brotherhood Daily Report has closed shop, but don’t despair.  It has launched a new and improved website:  The Global Muslim Brotherhood Daily Watch… more>>

 

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”?

Saudi national slips a cool trillion through U.S. banking system

On Sept. 28 during Congress’s third hearing on terrorist financing this year, (the last one focusing on the alleged “chilling effect” of Treasury’s policies on Islamic charities) attorney Eric Lewis testified regarding “one of the largest abuses ever of the United States banking system.” 

In the video below, Mr. Lewis begins by saying, “The fraud and money laundering scheme that I’d like to discuss involves the transfer of approximately $1 trillion through the United States financial system all directed by a single Saudi national named Maan Al-Sanea using a Saudi Arabian remittance company, or hawala, called the Money Exchange…”

Billions of opaque hawala dollars transferred on behalf of unknown Saudi customers raise no red flags.  Meanwhile the Obama administration wants to start forcing banks to report on customers who transfer twenty bucks overseas.  That makes sense!

Lewis’s full written testimony is available here.  Lewis also represents the prominent Algosaibi family which has an ongoing family/financial feud with the Al-Sanea family, but his testimony comes across as very credible nonetheless.

An unknown portion of the money “might have ended up with Islamic insurgents.”  Although Lewis doesn’t mention it by name, the U.S. bank in question is Bank of America, which denies the charges.  The testimony has received very limited press coverage, but the BBC has an article about it here.