Money and the Islamic State of Iraq and Syria

In 2007, the Islamic State of Iraq was seen as “the richest of the insurgency groups” in Iraq with $1 billion to 1.5 billion “collected in revenue by the group through foreign donations, enforced taxation and confiscation of the property and funds of Iraqis.” But the U.S. surge and ISI missteps significantly damaged the jihadist group’s ability to raise funds.

Seven years and three names later, ISIS amassed a $2 billion comeback and took control of large swathes of territory in northern Iraq including Mosul and 35 percent of Syria.

ISIS’s financial recovery has been marked by a slight shift away from reliance on local extortion networks (although those are still in effect), improved organizational and financial management by ISIS leader and self-proclaimed caliph Abu Bakr al-Baghdadi, and the departure of U.S. troops in 2011.

The most important elements of ISIS’s funding are sadaqa (voluntary donations) from Arab donors in the Gulf; sales and tolls collected on sales of oil from fields under its control; and increasingly through money made by controlling key infrastructure.

Here’s a rundown of ISIS’s main funding channels:

Sadaqa from private donors

• Support from Saudi donors and fighters
• Qatari donors and bundlers (see here, here, and here)
• Kuwaiti fundraisers
• Donors from the United Arab Emirates
• Other donations around the world including Indonesia

Fundraising is aided by contemporary marketing methods

• Publication of a glossy annual report to attract “investors”
• Increased use of social media to raise funds

Oil

• ISIS controls 60 percent of Syrian oil including the lucrative Omar field
• In Iraq, ISIS controls Butmah and Ain Zalah oil fields, the refinery in Baiji, and oil and gas resources in Ajeel in northern Iraq
• ISIS sells or collects a portion on black market sales to Turkey, Iran, and in Syria itself
• Revenue estimates for ISIS range from $1 million to $3 million daily

Dams

• In addition to oil, control of key infrastructure such as the dams in Mosul, Fallujah, and Tabqa present increasingly significant revenue potential for ISIS.
• Professor Ariel Ahram notes this is already occurring at Tabqa, where ISIS is involved in selling electricity.
• New York Times reporter Tim Arango says that possession of the Mosul dam can enable ISIS to “use it as a method of finance” through extortion schemes to continue their operations.

Other sources

• Isis has seized arms from Iraqi depots, including U.S. weapons given to Iraqi forces, plus weapons smuggled from Turkey and Croatia
• The collection of ransom money has sustained ISIS throughout its existence
• Antiquities smuggling

Incidently, little is being done by the Gulf states to curtail the flow of donations to ISIS because they either want an independent Sunni state carved out of Iraq or to replace Iraq’s Shia-led government with Sunnis. Washington should designate Saudi Arabia and Qatar as state sponsors of terrorism, but it won’t because of diplomatic considerations.

Without interdicting the donations and the contraband oil, U.S. airstrikes will have limited effect on ISIS’s coffers.

This piece is also published at Terror Finance Blog.

Nunn’s validation of Islamic Relief USA reveals system-wide failure

While she ran the Points of Light Foundation, U.S. Senate candidate Michelle Nunn (D-Ga.), authorized MissionFish, a Points of Light donation processor, to pass contributions from eBay customers to charities of their choice, including Islamic Relief USA (IR-USA). The Nunn campaign refers to this authorization as “validation;” in other words, Points of Light had researched the charity and validated it for inclusion on MissionFish’s list of eligible charities.

The Nunn campaign argues that $33,000 donated by eBay shoppers passed through Points of Light to IR-USA does not constitute a donation by Points of Light to IR-USA. That is disingenuous because what actually happened is that Points of Light received these ear-marked donations and then cut a check themselves to IR-USA. Points of Light benefits from the transaction because it increases the appearance of their overall charitable volume. The eBay customers would not have been able to donate funds to IR-USA while completing their purchases online if MissionFish had excluded the organization on their menu of options.

IR-USA donates millions of dollars each year to Islamic Relief Worldwide, a UK-based organization that has been banned by Israel for aiding Hamas, and whose leadership is linked to the Muslim Brotherhood. A Department of Justice official has implicated IR-USA for being a conduit for the flow of money from America to terrorist groups abroad. Russian intelligence indicates that IR-USA funds militants in the North Caucasus—the region where the family of the Boston marathon bombers originate. Nunn and Points of Light could have discovered several of the red flags about IR-USA, many of which had already cropped up before validation occurred, by conducting due diligence research or even a basic Internet search.

Unfortunately, Points of Light isn’t the first organization to legitimize IR-USA. IR-USA work has been acknowledged by Hillary Clinton’s State Department, the Obamas, the U.S. Department of Agriculture, and it maintains 501(c)(3) status with the IRS.

These politicians and agencies have been willing to overlook questionable practices by IR-USA because of their eagerness to demonstrate cooperation with Muslim Americans and Islamic charitable sector. The embrace of IR-USA was exacerbated by IR-USA’s fraudulent representation of itself as a larger charity than it actually was by hyper-inflating the valuation of their deworming drug stockpiles. Although the value of deworming drugs may sound like a technical, minor point, it is not. IR-USA basically perpetrated a fraud for several years by overstating the value of the drugs which made up 75 percent of their assets. Bigger institutions like USDA and Points of Light are likelier to partner with bigger charities, which IR-USA seemed to be. If IR-USA had reported a truthful value of its donations and assets, it may not have been viewed as a big enough charity to attract institutional partners like these.

A major charitable bundler like Points of Light had the resources to discover the disturbing truths about IR-USA’s connections to Hamas and its fraudulent financial statements prior to validation. It’s time that federal agencies and institutional donors started paying less attention to warm-and-fuzzy statements by politicians about what a great partner a certain charity is, and pay more attention to the results of basic due diligence research. Until then, and until there are changes at the highest levels of the IRS and the Department of Justice, and a willingness to confront IR-USA for its history of misrepresentations, we will probably see decisions like Nunn’s repeated again.

This piece has also been published at Terror Finance Blog.

5 Qataris who fund Al Qaeda

In addition to institutional and charitable support by Qatar, Al Qaeda and its offshoots (including jihadists in Syria and Iraq) receive substantial financial support from private Qatari donors and bundlers. Here’s a quick who’s who:

Abd al-Rahman al-Nuaymi

Abd al-Rahman al-Nuaymi
The U.S. Treasury Department describes al-Nuaymi as “a Qatar-based terrorist financier and facilitator who has provided money and material support and conveyed communications to al-Qa’ida and its affiliates in Syria, Iraq, Somalia and Yemen for more than a decade. He was considered among the most prominent Qatar-based supporters of Iraqi Sunni extremists.” Al-Nuaymi transferred $600K to Al Qaeda in Syria in 2013, and sent $2 million monthly to Al Qaeda in Iraq for an undisclosed period of time. He is also described as an interlocutor between Qatari nationals and Al Qaeda in Iraq leaders.

Salim Hasan Khalifa Rashid al-Kuwari
Treasury says al-Kuwari “provides financial and logistical support to al-Qa’ida, primarily through al-Qa’ida facilitators in Iran. Based in Qatar, Kuwari has provided hundreds of thousands of dollars in financial support to al-Qa’ida and has provided funding for al-Qa’ida operations, as well as to secure the release of al-Qa’ida detainees in Iran and elsewhere.”

Abdallah Ghanim Mafuz Muslim al-Khawar
According to U.S. officials, “Al-Khawar has worked with Kuwari to deliver money, messages and other material support to al-Qa’ida elements in Iran. Like Kuwari, Khawar is based in Qatar and has helped to facilitate travel for extremists interested in traveling to Afghanistan for jihad.

Khalifa Muhammad Turki al-Subaiy
The UN describes al-Subaiy as “a Qatar-based terrorist financier and facilitator who has provided financial support to, and acted on behalf of, the senior leadership of Al-Qaida (QE.A.4.01). He provided assistance to senior Al-Qaida leader Khalid Sheikh Mohammed prior to Sheikh Mohammed’s capture in March 2003. Since that time, he has provided financial support to Al-Qaida senior leadership in South Asia.” Al-Subaiy served a brief prison sentence in 2008 before being released by Qatar.

Yusuf Qaradawi
The Egyptian-born, Qatar-based spiritual father of the international Muslim Brotherhood sits atop a massive terrorist funding network including the “Union of Good” umbrella network of charities that funds Hamas. Qaradawi was also a sharia adviser for Al Taqwa which provided banking services to Al Qaeda.

This piece has also been published at Terror Finance Blog.

Seven habits of highly effective kingpins

Criminal and terrorist groups are highly interconnected according to new analysis of data by West Point’s Combating Terrorism Center. The conventional wisdom was that criminals worry that working with terrorists may draw unwanted scrutiny from their governments, and they are only inclined to cooperate only in resource-poor environments where it is necessary to survive. But the CTC finds that transnational traffickers and criminals appear to be more than willing to partner with terrorists, and that they benefit from these relationships in a wide variety of environments.

The full report can be read here. It is very thorough (89 pages) and includes academic language and models. Here are a just a few of the salient points from the study about members of the global underworld that may be of interest to practitioners and analysts outside of academia:

1. Interconnected: 98 percent of the individuals in the global illicit marketplace are within two degrees of separation of each other.
2. International: One in three individuals in the network have international relationships.
3. Distributed power: Unlike typical hub-and-spoke networks where 80 percent of the connections rely on 20 percent of the actors involved, the global illicit network is somewhat less dependent on a small number of powerful actors/kingpins. Twenty percent of participants are responsible for only 65 percent of underworld connections. This diffuse hub-and-spoke model makes the network tougher for law enforcement to disrupt.
4. Willingness to work with terrorists: “Individuals involved in other illicit activities link to terrorists 35 percent of the time” (p. 43). Terrorists often serve as “boundary spanners,” that link and form introductions between disparate groups such as drug traffickers, arms dealers, and organized crime.
5. Frequent bilateral links with the United Arab Emirates: The top two bilateral connections in the criminal underworld–the U.S. and Colombia and the U.S. and Mexico–are probably unsurprising to Americans. The third most prevalent bilateral connections are between India and the U.A.E., and the sixth most common are between Pakistan and the U.A.E.
6. Organized crime, not just terrorism, benefits from state sponsorship. We know that state sponsorship of terrorism exists, but for some reason we erroneously assume that state sponsorship of crime does not. The evidence from North Korea, Russia, the Balkans, and Pakistan indicates that criminals can carry out national interests—a phenomenon deserving further study.
7. Convergence is not driven by poverty. Terrorists and criminals are drawn together in a variety of environments, not just in countries where there are little money or resources. The evidence indicates that the opposite is often true—that criminal masterminds prefer climates where there is some level of predictability and economic development, such as Monzer al-Kassar operating in Spain and Dawood Ibrahim in Dubai. Focusing only on failed states could be a red herring.

Acknowledgment: Thanks to Twitter user @El_Grillo1 for sending in a link to the CTC study.

This piece has also been published at Terror Finance Blog.

Farid Foundation defends ICNA donation

This also appears at Terror Finance Blog:

The Islamic Circle of North America (ICNA) is the progeny the Muslim Students Association and the Islamist Jamaat-e-Islami movement. ICNA was previously directed by Ashrafuzzaman Khan, who was convicted in absentia by Bangladesh last year for war crimes committed during that country’s war of independence in the 1970s.

Tariq Farid, founder and CEO of the fruit basket company Edible Arrangements, and trustee of the Farid Foundation, has donated money to ICNA. This revelation comes from the Farid Foundation’s own website and from Farid’s attorney, who wrote last week that, “…the Farid Foundation’s only contribution was to a special fund of the ICNA called ‘ICNA Relief USA’, an organization in New York City, which, among other things, helps women with temporary housing.” The lawyer’s statement was made in response to an article published at Blue MauMau, a website for franchisees.

The Blue MauMau article highlighted a lawsuit filed by former Edible Arrangements controller Tara Perino, who says that Farid maintained a hostile workplace and discriminated against non-South Asians and non-Muslims. The lawsuit also describes the Farid Foundation’s support to ICNA: “Farid and his brother, Kamran Farid (Edible Arrangements’ Chief Operating Officer), at all relevant times hereto have been the two trustees of a foundation called the Farid Foundation, operated out of the same location as Edible Arrangements. Farid Foundation makes significant contributions to Islamic causes and organizations, including the Farid Foundation Pakistan; the Salma K. Farid Academy; Islamic Circle of North America Relief; the Muslim Coalition of Connecticut; the Inner-City Muslim Action Network; the Wallingford Islamic Center; Masjid AI-Islam; and the Islamic Association of Southern Connecticut.”

The author of the Blue MauMau article, Corbin Williston, noted that, “The head of ICNA at the time the suit was filed was Ashrafuz Zaman Khan”—the same man convicted of war crimes—and that the argument that the ICNA donation was “only” to a special fund wouldn’t comfort the people whose loved ones were tortured and murdered by Khan.

Indeed, and ICNA Relief USA isn’t exactly a ‘special fund’ anyway. It is a tax-exempt entity operated by ICNA. The statement that ICNA Relief USA provides transitional housing to women may be true, but it is quite misleading in terms of the charity’s primary activities: according to their own last tax return, ICNA Relief USA spent just $580,000 on housing for women out of its total $5 million in annual expenses.

On the revenue side, ICNA Relief USA received a $30,000 grant in 2012 from Helping Hand for Relief and Development, a Michigan-based Islamic charity with links to a Pakistani front charity that funds Hamas.

Tariq Farid’s attorney is doing his best to defend his client against some very damaging claims. But an admission that the Farid Foundation donated money to ICNA Relief USA doesn’t do much to clear the air.

Blue MauMau should be commended for reporting on the lawsuit against Edible Arrangements, and for keeping the article on their website despite the demand from Farid’s attorney to retract the article.

Acknowledgment: Thanks to Paul for alerting me to these developments

Passport fraud poses terror finance threat

The presence of two Iranians with stolen passports on the ill-fated Malaysian Airlines flight 370 highlighted the ease with which foreign nationals from state sponsors of terrorism can fly with a false identity and gain entry to a NATO country.

Although the men may not have been responsible for the plane crash, the situation raises the question of how often passports are stolen or forged and what threats this presents to the criminals’ purported country of origin.

Interpol says that only three countries in the world screen air passengers against Interpol’s database of stolen passports.  Phony passports are a big problem too.  Earlier this month, customs officials in Dubai seized 52 fake passports on the way into the U.A.E.

In 2010, ABC News reported, “A decade after the Sept. 11, 2001, terror attacks brought to light the dangers of fake IDs, federal undercover agents are still able to easily obtain genuine U.S. e-Passports using clearly fraudulent information that should have raised red flags at the State Department.”  The Government Accountability Office had confirmed previously that obtaining a real passport using fake identification could be done “easily.”  More recently, the Daily Mail reported that fake passports can be purchased through the online Silk Road black market.

Benefits of a fraudulent passport

Individuals can carry out many activities with a fraudulent passport other than boarding a plane.  They can set up bank accounts and apply for credit cards, like one eastern European mob boss did in Canterbury—accounts which he used “to rip off casinos, high street stores, petrol stations and banks.”  Hackers can also set up bank accounts in the U.S. from overseas using false passports, and use those accounts as repositories for money obtained as the result of malware attacks, as a case from a few years ago demonstrated.

Basically, obtaining a fraudulent passport allows malicious actors to “buy citizenship” in a target country.  The Telegraph reported this month that a Bulgarian passport can be purchased underground for £150,000, which enables the buyer to pose as a European Union citizen, even if he or she has a criminal record, and become eligible for government services and public benefits.

PBS’s Frontline has reported that Al Qaeda uses counterfeit passports and has conducted passport forgery workshops “to travel internationally in order to raise funds, recruit operatives, train the operatives in Afghanistan and send them out to plan and conduct terrorist attacks.”

False identities also complicate law enforcement’s efforts to investigate crime.  The CBC recently highlighted the threat of “synthetic ID fraud,” saying that “Fraudsters have been able to obtain driver’s licences, passports, phone numbers and credit cards, as well as open bank accounts, take out bank loans and create companies, all under fake names. By the time police move in, many of the fraudsters have vanished, leaving investigators trying to locate people who never existed.”

Diplomatic passports

Possession of diplomatic passports by ambassadors, consuls, and other diplomatic officials immunize travelers but from bag searches at airports.  This “diplomatic pouch” carve-out presents a significant smuggling risk.

Financial crimes analyst Kenneth Rijock revealed that Hezbollah agents based in South America were granted diplomatic passports by Venezuela, meaning:

Hezbollah agents could transport cocaine in international commerce, without fear of arrest. They also can carry bulk cash, or financial instruments into offshore financial centres, this moving Hezbollah drug profits along on their journey to controlled entities inside Lebanon.  One wonders whether how many Hezbollah agents are running around Europe with Lebanese diplomatic passports, moving cash or cashier’s cheques through EU banks, in support of the organisation’s terrorist goals…

The Venezuela connection was followed by an uproar in Canada over an Iranian national who entered the country with a diplomatic passport issued by St. Kitts & Nevis after the Iranian paid a $1 million bribe to Caribbean officials.

Author of the book Dirty Dealing Peter Lilley once observed that possession of a diplomatic passport from “an obscure country” could be red flag for money laundering.

What can be done

There can always be tighter controls and better physical standards for passports to prevent counterfeiting, the same way that officials do with currency.  More countries could use Interpol’s database of lost and stolen passports, although there are costs associated with that.  The Heritage Foundation has argued that the biographical questionnaire in the U.S. passport application should be modified.  Individuals should also take steps to safeguard their own passports from being stolen or copied.

Another measure to consider would be for some countries to increase the penalties for counterfeit passports.  Hollywood actor Wesley Snipes got off with simply being able to return to his country without even paying a fine after allegedly being caught abroad with a fake South African passport.

This piece has also been published at Terror Finance Blog.

Sanctions needed against Pakistan’s spy agency

This piece is also published at Terror Finance Blog today:

When dealing with undesirable behavior by foreign governments, the U.S. has increasingly employed narrowly targeted sanctions against individual officials of those governments, from human rights abusers in Syria to Russian leaders responsible for the annexation of Crimea.

But the same logic has yet to be applied to the ISI, Pakistan’s terrorist-sponsoring intelligence agency, which, compared to Russia and Syria, has posed a more direct threat to U.S. forces and civilians through the ISI’s sponsorship of terrorism against our troops in Afghanistan and through the safe haven it provided to Osama Bin Laden.

New York Times reporter Carlotta Gall revealed last week that, “Soon after the Navy SEAL raid on Bin Laden’s house, a Pakistani official told me that the United States had direct evidence that the ISI chief, Lt. Gen. Ahmed Shuja Pasha, knew of Bin Laden’s presence in Abbottabad,”  and that the ISI ran a special desk to “handle” Bin Laden.

The Bin Laden revelation is only the tip of the iceberg.  The Taliban itself was created by Pakistan, which allowed Al Qaeda to use Afghanistan as a base for hatching the 9/11 plot.  The perpetrators of the 26/11 terrorist attacks against Mumbai that left over 160 dead were also “clients and creations of the ISI.”

In an intercepted conversation, former ISI chief Gen. Ashfaq Kayani was heard describing Jalaluddin Haqqani, leader of the terrorist Haqqani network, as a “strategic asset.”  That is the way that Pakistani intelligence has looked at jihadists for decades—that holy warriors provide strategic depth and variety to the conventional armed forces along Pakistan’s borders.  They regard terrorism as a tool in a broader arsenal against Pakistan’s foes, making the country a state sponsor of terrorism in the truest sense of the phrase.

Designating a foreign spy service as a terrorist entity wouldn’t be such a major leap as it appears at first blush.  Interrogators at Guantanamo Bay are already trained to treat detainees affiliated with ISI the same way they would treat detainees affiliated with Al Qaeda or the Taliban.  The approach is partly due to evidence of ISI’s role in coordinating terrorist groups in operations targeting Afghanistan and India.

There is already some support for such sanctions.  Bruce Riedel, former CIA official and senior fellow at the Brookings Institute, called for individual sanctions against ISI officials.  New York writer Suketu Mehta said “America and other countries should declare Pakistan’s Inter-Services Intelligence, some of whose officials have a long history of backing terrorists attacking India, ‘a terrorist entity’.”  The Afghan National Security Council also expressed strong support last year for designating the ISI as a terrorist organization (see here and here).

Are there arguments against levying sanctions against the ISI?  Yes.  Pakistan could retaliate by ceasing its assistance to us while our troops are still fighting in Afghanistan.  But if it weren’t for Pakistan playing midwife to the Taliban, and the Taliban subsequently partnering with Al Qaeda, the terrorist attacks of 9/11 wouldn’t have happened in the first place.  It makes little sense to mollycoddle the puppet master because we think it will help us attack the puppet.

Unfortunately, sanctions often don’t achieve the desired results.  Foreign aid is fungible, and if the U.S. and U.K. continue bestowing lavish foreign aid upon Pakistan, the government there will simply be able to move money from development and education projects toward military and intelligence operations.

But to the extent that we use sanctions at all as an instrument of foreign policy, it should be done for the right reasons.  Lately we use sanctions like a necktie that we wear to look fashionable, while absentmindedly dangling the tie over a paper shredder.  Rather than a entangling ourselves in the regional or internal affairs of bad actors in places where we have few interests, sanctions should be used as a tool used to serve our own national security interests, and to contain those whose actions do us harm.

Time for due diligence on welfare recipients?

This piece also appears at Terror Finance Blog:

The family of Boston marathon bombers Tamerlan and Dzhokhar Tsarnaev received over $100,000 in public benefits from 2002 to 2012 according to documents compiled a year ago from state agencies by the Massachusetts House Committee on Post Audit and Oversight.

The aid included food stamps and welfare benefits to the Tsarnaevs’ parents and to Katherine Russell, Tamerlan’s wife.  Dzhokhar Tsarnaev also received student financial aid and forbearance (although he probably omitted income from drug sales and auto repair referral kickbacks on his student aid application).

Public benefits, being somewhat fungible, free up money for the recipient to put toward purposes separate from what was intended.  During the period of time that Katherine Russell received food stamps and welfare payments (2011 through 2012), Tamerlan was able to fly to Russia in early 2012 to seek out radical connections.  In effect, the benefits that Tamerlan and Katherine received through her name may have enabled the purchase of Tamerlan’s plane ticket to the jihadi rat’s nest of the North Caucasus.

The question of public benefits funding terrorists in Boston comes after years of ongoing scandals documented in Great Britain, where dangerous Islamists like Abu Yahya, Anjem Choudary, Emdadur Choudhury, and Abu Qatada have had their homes, welfare benefits, and legal expenses paid from taxpayer money.  “Twentieth” 9/11 hijacker Zacarias Moussaoui also received welfare benefits in England, along with the family of Abu Hamza.  Canada, Germany, the Netherlands, and Scandinavia have also dealt with the same exploitation of their generous public benefit programs by Islamists.

Several of these abuses probably occurred because of guidance that individual benefit recipients received from radical imams in their communities. Deceased terrorist imam Anwar al-Awlaki once wrote in Inspire magazine that, “All of our [Islamic] scholars agree on the permissibility of taking away the wealth of the disbelievers in dār al-ĥarb [the non-Muslim world] whether by means of force or by means of theft or deception,” for the purposes of carrying out jihad.  And the same Anjem Choudary mentioned above once encouraged Muslims living in the U.K. to collect public benefits as “jihad seeker’s allowance” instead of getting a job.

In light of this problem, it may be time to contemplate whether government agencies that issue public benefits should be required to adhere to the same know-your-customer provisions and due diligence requirements under which private sector financial institutions already operate.

Banks are required to conduct due diligence on account holders by carrying out activities like cross-checking their names against databases of sanctioned individuals or politically-exposed persons to help ensure that the bank is not assisting the customer in carrying out financial crimes such as money laundering, sanctions evasion, terrorist financing, graft, or other offenses.  Bank employees also have mechanisms and the responsibility to file reports when suspicious activity is observed.

However, there appears to be no equivalent legal requirement for government agencies that provide public benefits such as welfare payments, food stamps, or tuition assistance to undertake these due diligence and reporting functions.  Agencies screen applicant eligibility for a variety of public benefits (such as proof of financial need for student aid, and proof that you are actively seeking employment to obtain jobless benefits, etc.), but this screening tends to focus on the applicant’s legal eligibility for the benefit rather than on the risk that the benefit may be diverted by the recipient toward criminal or terrorist enterprises.

Neither is there a uniform standard for government agencies to report criminal misuse of public benefits to a central authority.  Rather, suspicions of fraudulent claims are handled differently by every agency awarding benefits, with different mechanisms for investigating and denying claims.  And again, the benefit fraud cases are focused on false claims by recipients who never should have received the benefit, and rarely target individuals who receive a benefit lawfully but misappropriate that benefit toward unauthorized purposes.

Should an assessment of high risk or an OFAC database name match be grounds for the denial of the benefit?  Perhaps not, but at least the filing of a suspicious activity report by a government compliance officer would provide additional data points for regulators to review and share with law enforcement as needed.

If due diligence requirements are worthwhile enough for the federal government to impose on the private sector, the private sector financial institutions have a right to ask the government to eat its own cooking.  This expansion of know-your-customer provisions to the government sector would seem especially important considering statements by radical imams and actions by terrorists like the Tsarnaev brothers to use public benefits to finance their planning and terrorist operations.

Recognizing the risks of Somali remittances

This piece is also appearing over at Terror Finance Blog today:

Last week, Bell State Bank in North Dakota announced that it would stop doing business with companies that remit money to Somalia.  The move follows decisions by Minnesota banks in 2011 to stop providing Somali remittance services, and an attempt by Barclays last year to cut off its partnership with Dahabshiil, a money transfer company with primary operations in Somalia.  The banks have been challenged in courts on both sides of the Atlantic, and advocacy groups have heavily criticized the banks’ decisions on humanitarian grounds.

Indeed, humanitarian considerations are of the utmost importance.  Unfortunately, money transferred to Somalia, particularly through Dahabshiil, all too often falls into the wrong hands and perpetuates the cycle of violence in Somalia.  Banks should stand fast in their original decisions, and here are five reasons why:

1. The risks are real.  The frequency of cases involving Somalis in the West transferring funds to al-Shabaab over the last few years presents genuine concerns to financial institutions.  For instance, four men in California were found guilty last year of transferring money to al-Shabaab through Shidaal Express, a Somali hawala business.  Two Somali women in Minnesota were sentenced in 2013 for sending money to al-Shabaab through several remittance channels including local hawala dealers and Dahabshiil.  A Saudi-American was also indicted last year for wiring money to al-Shabaab.  In 2012, a man in London admitting transferring £8,900 to fighters in Somalia.  Danish intelligence revealed in 2012 that the equivalent of thousands of dollars a day is sent to terrorist organizations outside of Denmark—mostly to Somalia, and often unwittingly.  In addition to genuine risks on the ground in Somalia, Western banks have real reasons for concern that if they continue relationships with Dahabshiil, they could subsequently be fined by regulators at a future date if political winds change.  U.S. banks are surely aware, for example, that decisions on whether to fine, settle with, or prosecute banks with lax compliance programs have a great deal to do with the shifting political and prosecutorial priorities of whoever happens to be in charge at the Department of Justice and the financial regulatory agencies.  One official may take a very friendly view toward facilitating Somali remittances this year, but a different person will be calling the shots two years from now.
2. The risks are not decreasing.  Gone are the days of 2012 when al-Shabaab appeared to be on the ropes in 2012 both financially and militarily.  Al-Shabaab was able to turn around its financial situation after the fall of Kismayo by cutting deals with occupying forces.  Al-Shabaab continues to profit from imposing taxes on commodities such as charcoal and sugar, and their role as ivory trade middlemen between poachers and buyers appears to be growing.  Al-Shabaab is still capable of carrying out devastating strikes such as the Westgate Mall attack and the recent assault against Somalia’s presidential palace that left 11 dead.
3. Dahabshiil poses a unique risk.  Western readers should be aware of alleged failures in Dahabshiil’s anti-money laundering and counter-terror finance compliance programs to include possible extortion payments made to al-Shabaab to operate in Somalia (which Dahabshiil denies).  One Guantanamo Bay detainee previously worked for Dahabshiil, and the presiding officer at a hearing for that detainee determined that his Dahabshiil branch transferred money for terrorism.  However, coverage of these allegations has been limited partly due from legal threats against journalists and online reputation management by Dahabshiil.

Guantanamo detainees endorse crowdfunding

This piece by Money Jihad blogger A.D. Kendall has been published today at Terror Finance Blog:

Five detainees at Guantanamo Bay have drawn up a lengthy business plan for an agricultural venture in Yemen as part as an instructional exercise.  The document was approved for release last month by military officials.  Judicial Watch rightly observes that the level of detail in the plan shows that the detainees “had access to many research tools, likely on the internet.”  Although the business proposal appears to be only a classroom activity and not an actual, shovel-ready project, the language in the document indicates that terrorists would be comfortable with crowdfunding as a sharia-compliant platform to raise money.

In their business proposal, the self-described “Board of Directors of Yemen Milk & Honey Farms Ltd” specifically mentions Kickstarter, RocketHub, and other crowdfunding platforms as options for financing their project.  They also note that crowdfunding can be equity-based, lending-based, reward-based, or donation-based.  After reviewing their alternatives, the board concludes that they would like their financing be “equity based or reward based, as the board has observed [that the] interest-based economy is facing serious problems world wide, specifically in Europe and America.”

Using the recession has been a convenient target for Islamist criticism of the Western financial system since 2009, ignoring the fact that the West still leads the world across any recognized standard of economic development and standard of living, and ignoring the larger context of long-term economic success of the West compared to the economic failures of the interest-shunning Arab world over several centuries.  But regardless of current or historical economic conditions, the truth is that the “board members” would still oppose interest on religious grounds.  Riba, the word used in Islamic texts for interest, is the same Arabic word that applies to unnatural growth and swelling akin to pond scum and asthma.

Islamic law allows for profit and investments involving co-ownership and profit sharing.  One such sharia financial concept that shares similar traits with crowdfunding is mudarabah, which Islamic finance lawyer John Dewar defines as, “An investment fund arrangement under which the financiers act as the capital providers (rab al-mal) and the client acts as the mudareb (akin to an investment agent) to invest the capital provided by the rab al-mal and manage the partnership.”  For a sharia crowdfunding project, the donors would serve as the rab al-mal.

Analysts for McKinsey & Co. further note that “Islamic commercial law strongly favors equity over debt financing, which suggests that crowdfund investing platforms are especially well suited to Muslim-majority countries. In our view, crowdfund investing and Islamic financial services are inherently compatible and mutually reinforcing.”

Thus, the business school at Camp 6 of Guantanamo prison is well-aligned with contemporary sharia financial strictures.  The “students” also appear to be one step ahead of regulators, who are just now developing anti-money laundering rules for crowdfunded projects which are be vulnerable to financial crime and exploitation.  As AML attorney Christine Duhaime summed up crowdfunding risks last fall, “The combined effect of crowdfunded securities being low-priced, placed in offerings that are exempt from [SEC] registration and not subject to the filing review process of a registered offering, makes crowdfunding open to being used as a vehicle for money laundering and other financial crimes.”

In addition to crowdfunding regulations currently under review, stronger terms of service by the crowdfunding companies may be in order to prevent exploitation of their websites by users who promote violence, illicit activities, or otherwise serve the interests of criminals and terrorists.

Worrisome projects include a Kickstarter project in 2012 that billed itself as “your chance to become part of the Arab Spring.”  If the two men who proposed the project had received the $20,000 they sought, they pledged to “travel together to Syria and join the rebels on the front line against the dictator Bashar al-Assad.”  Late last year, Forbes reported that an anarchist launched a crowdfunded bitcoin-based “assassination market.”