Gaps found in Malaysia’s terror finance policies

Malaysia has made progress in countering the financing of terrorism, but still has a long way to go according to a new report from the international financial watchdog FATF. Shortcomings include a derth of prosecutions, a failure to identify specific offenses under Malaysian law such as fundraising for terrorist causes, and extreme slowness in enforcing sanctions against UN-designated terrorists. From FATF’s “Mutual Evaluation Report” (h/t El Grillo):

Malaysia has undertaken over 40 TF investigations of which 22 are ongoing, however no prosecutions have been taken forward. Malaysia successfully uses other criminal justice and administrative measures to disrupt terrorist and TF activities when a prosecution for TF is not practicable. These include various domestic terrorist plots, terror groups and foreign terrorists. Malaysia also uses these other measures to address the most relevant emerging TF risk – individuals travelling to conflict zones to participate in or advocate terrorist activity. Malaysian authorities identify and investigate different types of TF in each counter-terrorism investigation, and counter-terrorism strategies have successfully enabled Malaysia to identify and designate terrorists, terrorist organisations and terrorist support networks. In the absence of TF prosecutions, Malaysia has not demonstrated that it has sanctioned different types of TF offences, such as the collection of funds for TF, or the financing of terrorist acts or individual terrorists.

Malaysia demonstrates many of the characteristics of an effective system for targeted financial sanctions (TFS). A key area of effectiveness is in the direct implementation of TFS against UN designated persons and entities. Malaysia has also domestically listed individuals and entities pursuant to UNSCR 1373 representing a range of domestic and international terror threats. Many of the elements of the legal system and processes for implementing TFS related to UNSCRs represent a best practice for other countries. Effectiveness of TFS is supported by supervision of the FI and some DNFBP sectors, outreach and awareness raising, and government agencies checking their own databases. In absolute terms the amounts frozen under TFS are relatively small, reflecting to some extent the cash economy nature of TF in the SE Asian region and the detention of a number of Malaysian designees. Recently more freezing actions have taken place outside of the banking sector and covering property indirectly owned or controlled by designated entities.

Malaysia’s approach to preventive measures, oversight and outreach to the NPO sector has improved significantly in recent years and demonstrates many of the characteristics of an effective system. Outputs reflect targeted approaches to TF risk mitigation, with outcomes achieved to a large extent. This includes RoS and other regulators as well as the RMP.

Despite good inter-agency cooperation on PF (policy and operational), Malaysia’s technical gaps in relation to R7 are significant and major improvements are required to make the process more effective. The long delays in transposing designations made by the UN into Malaysian law undermine effectiveness. RIs have increasingly good awareness of obligations, particularly in Labuan and the major FIs. Supervision of obligations is taking place, but implementation could be deepened and further supported with additional guidance. Two Malaysian banks have frozen over USD29 million of assets related to the one Labuan domiciled Iranian bank designated under UNSCR 1737. No entities or assets related to UNSCR 1718 have been detected. Vigilance measures adopted by Malaysia add to effectiveness.

Terror money news: suggested reading

• France arrests 6 Chechens for raising funds and recruiting jihadists… more>>

• Only military force, not conventional counter-terror finance techniques, can bankrupt ISIS… more>>

• Saudi Arabia is building a neo-Maginot Line to defend against the same jihadist forces that they bankrolled… more>>

• Hamas is doubling its stockpile of missiles and rockets for no reason in particular… more>>

10 red flags over Dahabshiil

Does the international remittance company Dahabshiil finance terrorism? Are its anti-money laundering and counter-terror finance programs adequate? Here are 10 warning signs to keep in mind:

1. Mohammed Sulaymon Barre, a Somali citizen and former Guantanamo Bay detainee, was alleged by U.S. officials to have worked in Osama bin Laden’s compound in Sudan in 1994 and 1995. He later worked at a Dahabshiil office in Pakistan before his detention. During a 2005 hearing at Guantanamo, a military judge told Barre, “I am convinced that your branch of the Dahabshiil company was used to transfer money for terrorism.” (Source: Washington Post).
2. In early 2011, Somali music star and future member of Somalia’s parliament, Saado Ali Warsame, released a protest song entitled, “Dhiigshiil ha dhigan” (which translates as “Don’t Deposit with Dahabshiil” or “Don’t send your money through Dahabshiil”). The song called Dahabshiil a “blood-smelter,” “the enemy of Somalia,” and implored Somalis: “do not deposit your money” with Dahabshiil. (Source: Money Jihad)
3. In late 2011, the Bell Pottinger public relations and lobbying firm cited its success in “manipulating Google rankings” on behalf of its client Dahabshiil to ensure that the Guantanamo Bay detainee story about Mohammed Sulaymon Barre didn’t appear on the first 10 pages of Google search results. (Source: The Independent)
4. Amina Farah Ali and Hawo Mohamed Hassan were convicted in October 2011 on federal charges of providing material support to the terrorist group al-Shabaab. The indictment had alleged that “Ali and others acting at her direction transmitted funds to al-Shabaab through the hawala money remittance system” using Dahabshiil and other remitters. (Source: U.S. v. Amina Farah Ali)
5. In December 2011, Minneapolis-based Franklin Bank and St. Paul-based Sunrise Community Banks ceased doing business with Somali hawala dealers and money transfer organizations including Dahabshiil over “concerns that the accounts put them at risk of violating federal rules designed to halt terror financing.” (Source: Minneapolis Star Tribune).
6. The British banking giant Barclays announced its intentions to sever ties with Dahabshiil in 2013 over regulatory compliance and terror financing concerns. (Source: Associated Press.) Litigation ensued which delayed Barclays’s plans, but a deal to end their business relationship was finally reached in April 2014. (Source: Financial Times)
7. In April 2014, U.S. Bancorp backed out of a long-planned deal with Dahabshiil after “an independent review of Dahabshiil and the inherent risk of doing business in Somalia.” (Source: American Banker)
8. Danish regulators found Dahabshiil offices in Copenhagen, Kolding, Aalborg, and Aarhus to be “completely inadequate” in their compliance with anti-money laundering and terrorist financing laws in Denmark, and referred the case to police for further investigation in July 2014. (Source: Danish Financial Supervisory Authority)
9. Somali news outlets reported in July 2014 that several Dahabshiil offices in Middle and Lower Juba were ordered by al-Shabaab to be closed after failing to make payments to al-Shabaab on time. (Sources: Radio Kulmiye, Shiniile News, and Dayniile)
10. Merchants Bank of California announced this month that it is ending its Somali remittance services including Dahabshiil accounts amidst “concerns that some money could be making its way to Islamic militants.” (Source: KARE 11)

Dahabshiil denies all allegations of financing terrorism.

New moves afoot to choke off terror money

• The U.S. takes aim at ISIS’s black market oil buyers… more>>

• Britain grants more powers to its charity regulator, including the power to remove dubious trustees from charitable boards (h/t @ConorMLarkin)… more>>

• Austrian law will ban foreign funding of imams… more>>

• The U.S. Rewards for Justice program of paying informants is still helping catch and kill terrorists… more>>

• Bulk cash smugglers beware–there’s a new system to detect the presence of excessive currency at border checkpoints… more>>

Terror funding news: recommended reading

Thanks to Gisele, Sal, El Grillo and all those who sent in tips.

• “Turkey has become a principal financial hub for terrorists under the leadership of Prime Minister Recep Tayyip Erdogan,” writes Adam Kredo… more>>

• Cultural property like art and antiquities are susceptible to exploitation in money laundering and terror finance schemes, but federal law doesn’t quite make the connection. Rick St. Hilaire explains… more>>

• British sanctions target Pakistani jihad financiers and millionaire terrorist Dawood Ibrahim… more>>

• Ten thousand dollars in farm subsidies have gone to a terror funding co-conspirator that grows no crops… more>>

Illicit transfer news: recommended reading

• Palestinian Islamic Jihad “receives between $100-$150 million dollars annually from Iran,” says an Iranian expert… more>>

• FinCEN shuts down a Michigan-based hawala dealer who sent 8,000 wires to Yemen and never checked a single customer’s ID… more>>

• We don’t know how much money is financing terrorism, and we don’t know how much it costs to combat its financing either, so how do we know if what we’re doing is working?  More>>

• A New Jersey company illegally shipped $70,000 worth of protective gloves to Iran… more>>

What’s really behind the Saudi rewards program

Saudi Arabia says it will offer rewards to people within the kingdom who provide evidence about terrorist financing that leads to a conviction (hat tip to El Grillo).

It has been rumored that the maneuver is designed to reign in Saudi-backed elements among the Syrian rebels whom Saudi Arabia can no longer control.

Money Jihad suspects that the initiative, which resembles the U.S. Rewards for Justice program, is a Saudi smokescreen designed to placate Western diplomats, U.S. Treasury officials, and international financial watchdog FATF.

Unfortunately, this wouldn’t be the first instance of Saudi deception about a counter-terror finance initiative.

In 2008, Saudi Arabia announced that its central bank, SAMA, would review charitable contributions from Saudi Arabia overseas (which are rife with donations to terrorist causes), but meaningful oversight has never occurred.  Saudi public statements about the SAMA program have been documented to be false.

In 2010, Saudi Arabia’s ulema council issued a ruling against terrorism, but the very same ruling defended zakat, which has often been used by wealthy Saudis to finance terrorist causes.  Saudi pronouncements against terrorism have often focused on protecting its own oil and gas infrastructure, and have pointedly excluded suicide bombers in Israel or Iraq from its definition of terrorism.

In 2014 we are told that Saudi Arabia will pay rewards to those who provide information about terror finance.  If this is actually enforced, Money Jihad predicts that it will be used against Shia dissidents, particularly in its oil rich, Shia-dominant Eastern Province (see related commentary by Amy Myers Jaffe here), or against those who transfer money to Shias in Bahrain or Syria.

It will not be used to curtail Saudi money flowing to Somalia, Bangladesh, Chechnya, or any of the other countries where Saudi Arabia has strategic interests.

China blocks money flow to Pak-backed jihadists

Demonstrating its concern that Pakistani-funded terrorists are brewing a witch’s cauldron of jihad in its Western territory, the government of China has signaled that it will crackdown on illicit financial transfers among Islamists in their western frontier.

The key thing for Western readers to understand here is not so much that China is doing anything particularly noteworthy beyond common sense, but to appreciate that most of that part of the world—Afghanistan, India, Bangladesh, and China—recognizes Pakistan as a base for terrorist activity.  The American public, except for U.S. forces who have served in Afghanistan and have witnessed this first hand, isn’t being told this basic fact.  The recent budget bill adopted by Congress included some glancing pre-conditions for the resumption of U.S. foreign aid to Pakistan, but John Kerry is likely to endorse the continuation of such aid regardless of the conditions in the bill.

Thanks to our Twitter friend Moinak for sending this over:

China moves to choke funding of terror outfits in Xinjiang

Move underlines Beijing concern over Pakistan-based outfits

China’s central bank on Friday announced new measures aimed at enabling authorities to freeze assets of domestic terrorist groups and their “overseas affiliates,” in a move seen as underlining China’s continued concern over outfits believed to be operating out of Pakistan.

The People’s Bank of China (PBOC) said the rules, issued along with the Ministry of State Security, “will prevent terrorism and is in accordance with a United Nations requirement that all nations freeze, without delay, funds or other assets of terrorists,” the official Xinhua news agency reported.

This followed a directive from the National People’s Congress (NPC) in 2011 requiring “financial and certain non-financial organisations” to take steps to freeze funds seen as being directed toward terrorist activities.

The PBOC said the regulation “mainly applies at home, but also has effects on overseas branches and affiliates of relevant organisations.”

That the move is aimed at curbing funding towards activities in the far-western Muslim-majority Xinjiang region, which has seen a spate of violent attacks, appears likely in the wake of measures taken by the Ministry of Public Security, or police authority, to restrict funds moving into Xinjiang following attacks in 2012.

In April of that year, the Ministry asked Pakistan to hand over six members of the East Turkestan Islamic Movement (ETIM), and said it had taken steps to freeze their assets.

Identified as “core members” of the outfit, they were named as Nurmemet Memetmin, Abdulkyum Kurban, Paruh Tursun, Tursunjan Ebibla, Nurmemet Raxit and Mamat Imin Nurmamat.

According to Chinese officials, Mr. Memetmin trained terrorists who carried out knife and bomb attacks in Kashgar in 2011 that left at least 20 people killed.

Officials also believe Mr. Nurmamat is hiding in Pakistan, or near the Afghanistan border, after he fled China in October 2009 when an explosion accidentally struck his bomb-making unit in Shache.

The Ministry of Public Security said in 2012 it hoped “foreign governments and their law enforcing departments would help to arrest the six and hand them over to Chinese authorities.”

Tracking terror finance and government follies: recommended reading

• The recent designation by the Treasury Department of an Al Qaeda financier neglects to mention that he and his organizations have consorted with Yusuf Qaradawi, spiritual father of the Muslim Brotherhood… more>>

• New details on the sanctioned Saudi billionaire in Turkey and the cover-up by Recep Erdoğan… more>>

• Government forces the financial sector to do the lion’s share of work in screening for laundered or terrorist funds, but government doesn’t really want to hear financial institutions’ ideas on how the process could be improved, says industry analyst Tom Keatinge… more>>

• Monitoring compliance with government financial regulations in a war zone in another continent is easy, right?  One expert explains why it isn’t, and how a UK court got it wrong on Dahabshiil… more>>

Turkey conducts zero probes of terror finance in 30 years

If Turkey hasn’t even investigated the financing of the PKK terrorist group, which Turkey regards as a real threat, then Turkey certainly hasn’t investigated the financing of the Turkish charity IHH—a Hamas-linked charity that operates as a proxy of the government.  Nor is Turkey scrutinizing the weapons that are being transshipped through its territory across the border to jihadist rebels in Syria.

Is it too much to ask a NATO ally to conduct at least one investigation into the financing of terrorism within its own borders?

From Today’s Zaman via Antalya Central:

‘Turkey hasn’t launched any probe on terror financing’

11 October 2013

Turkey has been fighting against terrorism for almost 30 years and this has resulted in the deaths of tens of thousands of people while billions of liras have also been spent.

However, previous efforts have all failed to produce the expected results in this fight. Recent research conducted by experts from the Ministry of the Interior, the Ministry of Justice and the Ministry of Finance has revealed that no judicial investigation into the financing of terrorism has ever been launched nor has any complaint on the issue ever been filed in Turkey.

Stressing that Turkey has been missing out key points in its fight against terrorism, the country’s most urgent problem, experts underlined that most of the criminal cases filed on the issue of terrorism are on propaganda crimes which resulted in Turkey being convicted by the European Court of Human Rights (ECtHR).

Security units in the country have recently taken some steps to eliminate the financial sources of terrorist organizations including the Kurdistan Worker’s Party (PKK) and the Kurdistan Communities Union (KCK), an umbrella terrorist organization that includes the PKK. But while the necessary legal infrastructure have been established, the sources of financing of the terrorist organizations were also discussed in further detail by the experts. Opium fields have been raided to eliminate drug incomes, the most important financial source of the PKK and the KCK. But it was found that money transfers to these organizations have never been fully monitored…

…PKK demands share from tenders

The experts also reported on sources of income for the PKK/KCK in detail. The organization reportedly earned around TL 100 million in 2012 from public tenders originally valued at TL 1 million. In 2013, this figure increased to TL 150 million. In addition, the PKK conducts customs control in various cities, primarily in Hakkari, Van, Şırnak, Mardin, Ağrı and Iğdır. The smugglers who use these customs points have to pay a tax to the terrorist organization, with the amount ranging between 2 and 5 percent of the value of the smuggled items, which amounted to TL 250-300 million in total.

Cash flow through borders

The amount of ilegal money flowing through Turkey’s borders on an annual basis exceeds $2.5 billion, which is described in the country’s financial system as money with unidentifiable sources.

“There is no information on where the huge amount of illegal cash goes or what purposes it serves. Officials need to identify the amount of money used by terrorist organizations,” said a senior official to Today’s Zaman speaking on the condition of anonymity, underlining Turkey’s inefficiency in keeping track of money flowing through its borders.

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…