Term of the week: money mule

Money mules are often used to surfeit money or goods on behalf of third parties. The technique is used by a variety of criminals including terrorists, who use the method to transfer money to each other to finance operations. One book defines a money mule as:

A person who transfers money and/or reships valuable, fraudulently-obtained goods. The money mule is often an innocent person who is misled into acting as a go-between in a scam. The instigator is usually a criminal who operates with impunity from another country.

SecurityIntelligence.com reviewed common money mule schemes in an article last fall covering work-from-home, secret shopper, lottery and inheritance schemes:

Money mules are significant in the process of cashing out compromised financial accounts. A money mule is a person who receives and transfers illegally acquired money on behalf of others. Unknowing mules are likely recruited through online job advertisements and spam email. Job titles may include, but are not limited to, “mystery shopper,” “payment processing agent” or “money transfer agent.”

They also may be recruited through romance and lottery scams. Unknowing mules are vulnerable adults who are often older, lonely and potentially financially strapped. Fraudsters will start relationships with these individuals through online dating sites, social networking sites and/or job advertisement sites. The fraudster, acting as a predator, will attempt to cultivate a relationship with the victim based on lies.

Schemes that target unknowing participants are typically focused on employment and relationship scams. At some point, the victims of these schemes (particularly the employment scams) may become knowing, or at least half-suspecting, mules. They realize that they may be part of an illicit scheme but will continue to try to make money because of personal circumstances.

Read the rest of the SecurityIntelligence.com article here.

* Woodward, Jeannette, What Every Librarian Should Know about Electronic Privacy (Westport, CT: Libraries Unlimited, 2007).

Term of the week: Tajheez al-Ghazi

There are some quotations about halfway down the right-hand margin of this webpage including a statement attributed to Muhammad that “The warrior gets his reward, and the one who equips him gets his own reward and that of the warrior” (Sunan Abu Dawud, Book 14 No. 2520) and a sales pitch from Osama Bin Laden who told Muslim businessmen, “Your duty is to support the Mujahideen with money and men… The Zakat of one affluent Muslim merchant is enough to finance all the Jihadi front against our enemies.”

These are central concepts behind the money jihad, or al jihad bi-al-mal (see here and here). Those who wage jihad with their life or their money are to be considered of greater worth than Muslims who “sit at home” according to classic Islamic texts.

Another element of this principle is the concept of tajheez al-ghazi. Tajheez means “preparation” and al-ghazi means “warrior.” Those who cannot personally join the fight are asked to prepare (ie to fund, arm, gird, or fit) the warrior for battle.

Edwina Thompson and Aimen Dean learned more about this concept during extensive field work and interviews with 65 current or former jihadist operatives, and published it (along with co-author Tom Keatinge) in the July/August 2013 edition of Perspectives on Terrorism journal. This is a must-read:

…There are many examples from the Qur’an which illustrate the importance of giving generously to the cause of jihad and the war effort. Islam recognised from the beginning that wars, whether defensive or offensive, cost money. Therefore Islam devised a mechanism by which people would voluntarily contribute, and contribute generously, to the war effort while considering such contributions as charity. As history shows, early Muslims took this message to heart. Contributions to the Jihad took many forms: some provided arms and shields, others food and livestock, or horses and camels. The most common method of contribution is ‘Tajheez al-Ghazi’ – simply defined as fitting or arming a soldier, which allows for those who cannot, or will not, join the jihad physically for whatever reason, to achieve the honour and heavenly reward of waging jihad by proxy. The Prophet Muhammad encouraged this type of sponsorship: ‘Whoever arms a Ghazi then he would be considered a Ghazi, and whoever looked after the family of an absent Ghazi, he will too be considered a Ghazi’ (Bukhari, 2630). More popular than shields, armour, and horses is now money, which is paid to individuals aspiring to make their way to jihad theatres of conflict.

Jihad volunteers are the life and blood of such theatres in Afghanistan, Iraq, Yemen, Somalia, North Africa and Syria today. Therefore, without Tajheez being readily available for potential Jihadists the ability of groups such as al-Qaeda and the Taliban to sustain their level of activity in these theatres would be severely limited. From primary research that covers the period from 1991 to mid-2012, it emerged the Tajheez cost per jihadist was between US $3,000 and $4,000 in Bosnia (due to the number of countries that the volunteer needed to pass en route and the need to cover the cost of his AK-47), and US $2,000 to reach Afghanistan and have enough money to cover basic needs. In the case of the roughly 100 foreign jihadists who made it to Chechnya, the cost of Tajheez skyrocketed to more than US $15,000 per person due to the difficulty of entering Chechnya.

As jihad theatres emerge around the globe and attract public and media attention, local individuals, clerics and small fundraising cells organically emerge to organise and collect funding for Tajheez. Again, primary research conducted by one of the authors indicates that four out of ten Jihadists received their Tajheez from money raised or contributed by women. The funds are collected in cash, handled by individual and small cells, with almost no banking transactions occurring or with funds moving through officially registered charitable channels. Some contributors use their own credit cards to purchase tickets for traveling jihadists. Tajheez relies on hundreds of outlets, whether they are clerics or coordinators, dispersed over dozens of countries and with no organisational links between them or to a central authority, making it impossible to track them all. What unites them is a common cause…

Anybody who is serious about understanding the motives behind those who donate money to jihadist causes or the methods behind terrorist fundraising must grasp this concept.

Leadership shuffle at U.S. Islamic charities

In May of 2013, the financial rating of Islamic Relief USA, the nation’s largest Islamic charity, was downgraded from four stars to two stars by the nonprofit watchdog Charity Navigator. By October of 2013, it was announced that IR-USA’s chief executive officer, Abed Ayoub, was leaving IR-USA to take over a northern Virginia charity now known as United Muslim Relief (UMR), that had dropped its old name, “Muslims Without Borders” one day earlier.

While he was CEO of IR-USA, Ayoub presided over a period of falsely inflated growth for the well-known Islamic charity. By grossly misstating the value of deworming drugs, IR-USA gave the appearance of having over received over $160 million in donations in 2010. When it used corrected valuation techniques in 2011, IR-USA reported contributions of only $60 million. The fraudulent bookkeeping of 2001-2010 enabled IR-USA to attract larger institutional donors than it otherwise would have, along with political endorsements from top Democrats and partnerships with federal agencies. Smaller Islamic charities were some of the victims of this fraud, because federal officials have often encouraged Muslim donors to give their zakat to larger, more “trustworthy,” charities like IR-USA. During Ayoub’s final year as CEO, IR-USA donated over $100,000 to nonprofits and mosques connected with terrorism.

Ayoub was replaced by Anwar Khan as IR-USA’s new chief executive officer in June of this year shortly before Israel banned Islamic Relief Worldwide (an IR-USA partner) from operating in Israel due to its financial connections to Hamas.

As for UMR, in its last publicly available tax return for 2012, the charity reported that it received $700,000 in medicine donations, but it is unclear what method was used to calculate that value. UMR did not have its financial statements independently audited in 2012. UMR’s main charitable activities for 2012 took place in Syria. The director of UMR at the time was Shafi Khan, who is still active with UMR both as a vice president and governing board member.

Donor nations appear clueless about Palestinian Authority stipends to terrorists

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

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

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

How British and American aid subsidises Palestinian terrorism

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

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

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

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

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

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

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

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

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

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

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

Term of the week: Afghan Trade Transit

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

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

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

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

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

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

Guess the Taliban can breathe easy again.

Term of the week: trade-based money laundering

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

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

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

 

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

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).

Word of the week: third party

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

Find out if there is a third party

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

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

Who is a third party?

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

How to find out if there is a third party

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

Examples of a third party:

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

Records to keep on a third party

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

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

You find out that there is a third party

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

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

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

You suspect that there is a third party

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

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

Word of the week: soft loan

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

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

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

What is a “soft loan”?

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

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

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

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

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

Wednesday word: bitcoin

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

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

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

Wednesday word: digital cash

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

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

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