TCF goofs on golden gopher terror transactions

TCF Bank Stadium at Univ. of Minn.

Iranian students at the University of Minnesota engaging in possible terrorist financing activities have been allowed to maintain accounts with TCF Financial Corp. until now, as lapses in the bank’s compliance program have come to light during a federal probe.

Several of accounts will be closed despite “concerns that innocent people were being profiled.”  It is unclear why individual account holders should be concerned or who is raising the concerns, since the bank (not depositors) is the party receiving the penalty.

TCF will pay a $10 million fine as part of a consent order with the federal government for its compliance shortcomings, which included filing slipshod suspicious transaction reports (STRs) of “poor quality.”

Hat tip to Sal Imburgia for sending this in.  From the Minneapolis Star Tribune:

TCF to pay $10 million for lapses in monitoring suspicious transactions

By Jennifer Bjorhus

Jan. 26–TCF Financial Corp. will pay $10 million for lapses in monitoring suspicious bank transactions, including potential terrorist financing.

The fine, announced Friday by the Office of the Comptroller of the Currency, caps a long-running probe of the Wayzata bank’s compliance with the Bank Secrecy Act. TCF mishandled mandatory reports regarding questionable dealings, a key tool for law enforcement to prevent money laundering and other illegal activity, federal officials said.

At issue were cash transactions that appeared to be manipulated, and wire transfers where the source and purpose of the funds were unknown, the OCC said.

The Bank Secrecy Act requires financial institutions to make sure illegal money doesn’t flow through their organization, and regulators have stepped up enforcement in the past few years.

Last month, British banking giant HSBC agreed to pay $1.9 billion to settle an investigation focused on laundering money from drug traffickers in Mexico and conducting transactions with sanctioned countries, such as Iran and Cuba. More recently, the Federal Reserve hit JPMorgan Chase & Co. with a cease-and-desist order requiring it to beef up compliance.

As for TCF — the third-largest bank in Minnesota with $19 billion in assets — regulators said the lender botched its required reports.

Between November 2008 and July 2010, TCF was late filing 2,357 reports of suspicious transactions, according to the consent order from the OCC. The filing goes on to say that in 13 cases, involving about $7.2 million, the bank failed to properly file reports “related to transactions indicative of possible terrorist financing.”

The reports to law enforcement were of “poor quality,” it said. In some cases the bank didn’t check the “terrorist financing” box on reports when the narrative section referenced possible terrorist activity, and in other cases the narrative didn’t make clear what sort of suspicious activity had taken place.

In addition to paying the fine, TCF agreed to refile the 13 reports and do employee training, according to the consent order.

TCF issued a statement Friday saying it overhauled its program for complying with the Bank Secrecy Act. It called the settlement a “significant step” toward resolving the consent order that regulators issued against the bank in 2010.

Banks simply haven’t taken suspicious activity reports seriously enough, and the tougher enforcement is overdue, said bank analyst Nancy Bush, a contributing editor of SNL Financial in Charlottesville, Va.

“Banks have every way in the world to track this stuff,” Bush said. “They certainly know what comes in and what goes out of their banks on a daily basis.”

Bush said she thought TCF’s $10 million fine was relatively small: “It seems to be more symbolic than anything else.”

TCF CEO William Cooper was traveling late Friday and couldn’t be reached for comment. In an interview, spokesman Jason Korstange said the bank did a “very, very thorough examination of all our accounts.”

“Ultimately we did not find any terrorist activities,” Korstange said.

The settlement sheds some light on the mysterious letters the bank sent last month to about a dozen students at the University of Minnesota who are from Iran. The letters, in which TCF warned it might close their accounts, triggered concerns that innocent people were being profiled.

Korstange said the bank is still working through that matter. TCF has an exclusive agreement with the university to offer checking accounts linked to school photo ID cards.

Police: Lebanese expat transferred $50K-$200K per deposit to fund terrorist training

Hezbollah banks in Syria and Turkey received proceeds from Wassim el Abd Fadel’s CD and DVD pirating scheme along with cocaine trafficking profits according to Interpol and Paraguayan police.

American security enhanced as OPEC weakens

Thanks to increasing U.S. and Canadian energy production, OPEC no longer induces the wild reaction among traders that it once did.  This according to investor Travis Hoium writing for The Motley Fool (with stock quotes omitted) last month:

Is OPEC Still Relevant in Oil Market?

The energy market used to hang on every word from OPEC. A reduction or increase in production could send prices rising or falling in an instant. But, earlier this week, the oil-producing group announced that it would maintain production where it is, and almost no one cared. There weren’t headlines on the evening news or endless analysis on cable television. It was a story that was over almost before it happened.

This begs the question: Is OPEC still relevant in the oil market?

It’s not what it used to be
To say that OPEC doesn’t matter would be silly. In fact, OPEC’s production has grown faster than world production over the past 20 years.

You could make the argument that OPEC’s influence globally has grown and, considering the rise in prices over the past 20 years, the economic influence of OPEC has arguably grown.

The difference in the past few years is who is buying OPEC’s oil and where these trends are headed. The chart below shows that while OPEC oil production has grown slightly over the past five years, the amount of oil produced in the U.S. and Canada has exploded.

This chart may explain why traders don’t react wildly to OPEC’s statements anymore. It isn’t the U.S., Canada, or even Europe who is heavily dependent on OPEC for oil these days. China is a growing customer of OPEC’s oil; roiling the one customer that is growing isn’t something OPEC is likely to do any time soon.

Impact on stocks
The impact of OPEC’s waning importance in North America can be felt on the stock market as well, particularly by shipping stocks like Frontline, Teekay, and Nordic American Tankers. These oil shippers are being affected by a dramatically reduced need for foreign oil in the U.S. and Europe, and they are all bouncing near 52-week lows.

Right now there’s no end in sight to the pressure on these stocks. With oil production up in non-OPEC countries the need for long-haul shippers is in a steep decline.

The trend will continue
The general trend of increased oil production in North America, and waning influence of OPEC here, is likely to continue. Companies like Continental Resources, Whiting Petroleum, and Kodiak Oil & Gas are still expanding production in the Bakken Shale play in North Dakota and Montana, the Saudi Arabia of North America.

As long as oil prices don’t drop dramatically, the expansion of oil drilling and oil sands production will continue. OPEC will have less influence on oil traded in the U.S. and oil prices felt here at home.

Not forgotten, but in a pickle
With OPEC’s place in context, I would say that OPEC isn’t the power it once was… but it could be. If OPEC decided to drastically increase or decrease supply it could again have a major impact on global oil prices. But that’s becoming less and less likely because of economic reasons within OPEC itself.

OPEC countries are reliant on the revenue that oil exports generate — disrupting supply right now could be problematic. Increasing supply could lower prices and put pressure on shale producers, but budget pressures on many of these member countries requires that they maintain a steady profit from oil. It’s not easy to double supply, but the price of oil easily could be cut in half if another 10 million barrels per day hit the market, for example…

Strong analysis.  On the other hand, OPEC will continue finding buyers in Asia and retain its position as a global power.  And rapid growth in Iraqi oil production could shift the dynamics in OPEC’s favor too.

But the best things about the possibly diminishing power of OPEC are a lesser likelihood of price shocks, less dependence on a volatile part of the world, and less money to fund terrorism.

AP deems terrorist ransom demands “pragmatic”

In reference to the Algerian hostage standoff that left 37 captives dead, the Associated Press has painted an almost sympathetic portrait of Mokhtar Belmokhtar, the lead abductor.

Starting off with a headline claiming that Belmokhtar preferred making money to killing hostages, the AP further asserts that Belmokhtar was “known as the more pragmatic and less brutal of the commanders of an increasingly successful offshoot of al-Qaeda,” that “those who have dealt directly with him say his cell has never executed a captive,” and that Belmokhtar denounced actions that “caused many civilian casualties.”

Any exceptions to this history of Belmokhtar’s alleged benevolence, intimates the AP, may have involved friendly fire by security forces attempting to rescue hostages.  The AP inserts this whiff of suspicion about the rescuers twice in the article saying, “It’s unclear if the two died from friendly fire,” and later on, “It’s unclear how many were killed by friendly fire.”  Just once, couldn’t the AP have written, “It’s unclear how many were killed by Belmokhtar’s men”?

The AP does not even seem to consider that Belmokhtar may use the money from ransoms to purchase more arms, recruit and train more terrorist operatives, and carry out more abductions and terrorist attacks that kill people.  The AP appears to cast Belmokhtar’s motives as primarily financial without identifying his religious and ideological motivations.  Why didn’t Belmokhtar pursue a career as a businessman, or even as a crime boss, rather than as a terrorist, if his motives were mostly financial?

The one saving grace in this well-researched but sadly biased article comes in the dead last paragraph—the least important paragraph for journalists:

“Before he led this operation in Algeria, that was the sentiment I had, that Belmokhtar was less brutal,” [hostage negotiator Moustapha Chaffi] said by telephone on Friday. “Now I find myself thinking that they are all terrorists. That they all take hostages. That they are all fanatics. So to draw a difference between them is really, really relative. There’s in fact no difference anymore.”

That insight should have been the lead paragraph.

Terror financier sentenced to 14 years

Tahawwur Rana, an Islamic extremist who used a Chicago front company to fund the Pakistani jihadist group Lashkar-e-Taiba, has been sentenced to 14 years in federal prison.  Rana also bankrolled activities of his lifelong friend David Coleman Headley, the lead scout behind the 26/11 Mumbai terrorist attacks—attacks which were also funded by Pakistan’s ISI spy service via Lashkar-e-Taiba.

Headley himself was sentenced to 35 years in prison yesterday.  He was largely responsible for the deaths of over 160 people including six Americans.  U.S. officials claimed that Headley was cooperative with investigators.  Eric Holder authorized prosecutors not to seek the death penalty, and the prosecutors didn’t even seek a life sentence in light of Headley’s “cooperation.”

Asked if he was remorseful about the loss of life, Headley simply said “they were Indians.”

Pakistani money funds terrorist bonuses

Improvised explosive attacks on U.S. and coalition forces in Afghanistan earn the jihadists between $100 to $1,000 apiece, money which originates from Pakistan’s ISI service and other sources, according to a recent Time magazine report entitled “Afghanistan’s IED Complex: Inside the Taliban Bombmaking Industry.”  The whole article is here (h/t Sal Imburgia); a couple key excerpts follow:

“The enemy has ISI money, narcotics money, and other sources,” says Sediq Sediqqi, the spokesperson for the Afghan Ministry of Interior, referring to Pakistan’s intelligence service. “We need to be able to counter their investments”…

Locals in Panjwai claim the Taliban have also turned to subcontracting, so far a trademark of the coalition side of the war. The insurgents supply the explosives, they say, but unemployed youth plant them for cash. If they blow up an Afghan police vehicle, they get anything between 10,000 and 20,000 Pakistani rupees ($100-$200). If they blow up a coalition vehicle, the reward is as high as 100,000 Pakistani rupees. The claim is difficult to prove. But there does exist an internal Taliban bonus structure for operatives carrying out IEDs successfully. Mullah Kalam said he has gotten up to 20,000 PKR for blowing up U.S. vehicles, and 10,000 PKR for Afghan police vehicles. “We definitely have a bonus, a sweetener,” Kalam says.

The ability to pay extra to successful attackers is different from the method used by Al Qaeda in Iraq, which employed a flat wage structure according to a recent study (h/t Paul Gill). Incentive pay in Afghanistan suggests that the Taliban either has extra funds to provide bonuses, or that they want to reward the most ardent fighters and are prepared to expend their money accordingly.  The comment by the Afghan Interior Ministry spokesman supports the former.

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

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:

Case can proceed against terror-funding bank

Progress made as court rejects bank’s appeal

Arab Bank’s refusal to turn over records has been a major obstacle in the Linde v. Arab Bank terrorist financing case.  To move beyond the legal stalemate, the presiding judge said the jury could infer what it wants to about Arab Bank’s secrecy.  The bank appealed the judge’s jury instruction to the U.S. Second Circuit Court of Appeals.  The appellate court ruled Friday that it had no standing to review the case at this time (h/t @ChallahHuAkbar), and that there’s nothing drastic enough about the judge’s instruction to cause the circuit court to intervene.

From Bloomberg:

Arab Bank Sanctions Order Appeal Dismissed by U.S. Court

Arab Bank Plc (ARBK)’s appeal of sanctions for not obeying discovery orders in a lawsuit brought by victims of terrorist attacks was dismissed by a federal appeals court in New York.

The U.S. Court of Appeals in Manhattan ruled today that it couldn’t hear the bank’s appeal of a sanctions order imposed by U.S. District Judge Nina Gershon in Brooklyn until after the consolidated suits pending before her have ended.

“We conclude that the sanctions order is not a reviewable collateral order, and we therefore dismiss the bank’s appeal for want of jurisdiction,” the panel of judges said.

“We conclude further, that this is not an appropriate case for issuance of the extraordinary writ,” the appeals court said, adding, “the bank has not established (among other factors) that it has a ‘clear and indisputable right’ to such drastic relief or that review after final judgment will not provide adequate relief.”

Courtney Linde, the widow of John Linde Jr., who was killed Oct. 15, 2003, while guarding diplomats traveling in the Gaza Strip, sued in federal court in Brooklyn in 2004. She is the lead plaintiff for a half-dozen families suing the Amman, Jordan-based lender in cases that allege it “knowingly and purposefully supported” foreign terrorist organizations between 1995 and 2004 by providing financial support. The bank has denied wrongdoing.

Sanctions Imposed

The judge imposed sanctions upon the bank for not complying with several court orders to produce documents the plaintiffs said were relevant to their case. Gershon’s sanctions took the form of a jury instruction that would permit — but not require — the jury to infer from the bank’s failure to produce the documents that it provided financial services to foreign terrorist groups and did so knowingly.

Gershon also precluded the bank from introducing for the jury’s consideration certain evidence related to undisclosed materials.

The bank argued that the sanctions were “unduly harsh,” that jury instructions would predetermine the outcome of the case, and that the documents are covered by foreign bank secrecy laws, so that their disclosure would subject the bank to criminal prosecution.

Ten similar suits brought against the bank by the families of dozens of victims of other attacks in Israel were consolidated and are pending before Gershon. She hasn’t yet determined whether any of those cases will go to trial.

‘Substantially Right’

“We think they got it substantially right,” Gary Osen, a lawyer for some of the plaintiffs, said in a phone interview about the decision to dismiss the appeal. “It just means these cases can go forward. All we ask for is our day in court.”

Bob Chlopak, a spokesman for Arab Bank, said in an e-mail that the ruling is “not an endorsement of the district court’s sanctions.”

“The bank continues to believe that the district court’s sanctions order raises serious issues of international concern, and it is currently weighing its legal options,” he said.

The bank, Jordan’s largest, won dismissal in November of a separate case filed by former Israeli government official Mati Gill, which alleged that the lender supported the group Hamas. Gill, who was injured in a 2008 by a shot fired from Gaza, a territory bordering Israel, sought damages from the bank…

Funding of terrorist groups compared

In a paper describing misconceptions about terrorist financing, W. A. Tupman of the University of Exeter includes a helpful typology of a variety of terrorist groups and how they are generally funded.

Tupman says that Islamic terrorists are often funded by charities and individuals, which is true.  But naturally, this typology is very broad with overlap and exceptions that can’t be squeezed into a single chart.  For example, Money Jihad and other sources have pointed out that Iranian-backed terrorists obviously depend on state sponsorship.  South Asian and Indonesian jihadists have increasingly used bank robberies to finance their activities.  Islamic militants also use sharia bank donations to fund operations.

But the one critical adjustment that should be made to this table since Mr. Tupman originally developed it years ago is the addition of the “revolutionary tax” concept, which he associates primarily with urban guerrillas, as a key funding source of Islamic fundamentalists as well.

Islamic terrorist groups with actual mujahideen fighters on the ground (as opposed to sleeker Muhammad Atta-style sleeper cells), sustain themselves by taxing the populations under their control.  Consider the Taliban’s ushr tax on Afghan agricultural (not just poppy) harvests, and al-Shabaab’s 2½ percent zakat tax on the Somali charcoal trade.  These are major revenue sources upon which these wealthy jihadist groups rely for two reasons:  1) such fundraising methods are consistent with Islamic tax law and the practices of Muhammad or the historical Caliphate, and 2) taxation ensures a steady, local, and accessible revenue stream independent of donations from wealthy Gulf Arabs and independent from the international banking system.

This nuance is important to understand because different terror funding methods require different counter-terror responses.  Penetrating a sleeper cell structure of Al Qaeda or the Red Brigades is different from crippling a rebel movement.  Contemporary anti-money laundering regulations designed to detect specific illicit financial transfers may be helpful in limiting expatriate donations to nefarious causes, but such methods are nearly useless in fighting the imposition of zakat, ushr, and jizya on populations overseas.  That’s part of the reason that we’ve seen virtually zero Taliban assets frozen in the 11 years since the initial push of coalition forces into Afghanistan.

How can we bankrupt and defeat the financing methods of groups we fail to understand?

Syria: funding an Islamist rebellion through theft

Free Syrian Army steals flour from Aleppo’s main warehouse

Al Qaeda seizes monopoly control of bread distribution

The BBC is reporting that flour heists by the FSA has led to long bread lines and volatile crowds at bakeries in Aleppo.  Daily life in areas under FSA control is turning out to be a disaster for the locals.  One FSA officer tells the reporter, “We are all thieves.”

Western foreign aid to Syria looks increasingly ill-considered.  Take a listen to two minutes of the BBC’s report:

But the FSA’s corruption, greed, and accusations of “theft, looting and kidnapping for ransom,” aren’t the only problems.  The BBC and NPR have also reported that al-Nusra Front, the Al Qaeda affiliate in Syria, has wrested control of flour distribution out of the hands of the FSA.  This ensures that bakers and the hungry are loyal to Al Qaeda exclusively rather than corrupt “moderates” of the FSA.

Either way, the Syrian flour situation is a recipe for disaster.

Iran financing Gaza’s jihad by land, sea, and air

Whether through Sudanese ports, Libyan overland routes, the Rafah border crossing, or smuggling tunnels, Iran has been reasserting its role as the leading regional state sponsor of terror against Israel by funneling arms to Gaza.

Were reports of imminent financial collapse of Iran premature?  If Iran can fund weapons shipments to Gaza to the degree alleged by Israeli officials in this report, it would seem so.