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.

China fails to fool FATF body on Pakistan’s terror financing

India has blocked a Chinese maneuver within the Asia Pacific Group on Money Laundering to white-list Pakistan.

That would be the same Pakistan that created the Taliban, harbored Osama bin Laden, and is probably protecting terrorist fat cat Dawood Ibrahim.  Pakistan funnels millions of dollars through its ISI spy service to terrorist and militant groups in Afghanistan, Kashmir, and beyond.  Pakistan is well-known for corruption, graft, and slipshod tax administration.  China sought to shield Pakistan from any scrutiny of its abysmal counter-terror finance and anti-money laundering programs purely for geopolitical purposes.  Kudos to India for keeping the pressure on.

From TNN on June 30 (hat tip @TerrorismWatch):

India blocks China’s bid to save Pakistan on terror finance scrutiny

NEW DELHI: Pakistan’s enforcement of UN financial sanctions against terrorism will be closely monitored by Financial Action Task Force (FATF) through its associate body, the Asia Pacific Group on Money Laundering (APG), after India successfully blocked China’s attempt at a recent FATF meet in Brisbane to save non-FATF member Pakistan from such scrutiny.

FATF is a policy-making body whose objectives include setting standards to combat money laundering and the financing of terrorism and supporting implementation of these standards. APG on money laundering, somewhat of a mini-FATF of which Pakistan is a member, is committed to the effective implementation and enforcement of standards set by FATF.

According to sources in the government, India, with the support of allies like the US, managed to derail China’s bid which was backed by Australia to shield Pakistan on terror financing. The FATF meet agreed with India’s argument that Pakistan, despite not being part of FATF, was part of APG which works in close collaboration with FATF, and its enforcement of targeted financial sanctions against terrorism should be subject to monitoring by FATF through the APG.

At the FATF meeting last week, India and the US spoke up against Pakistan’s lack of conviction in implementing anti-terror financial sanctions by freezing assets or attaching properties of 26/11 masterminds Hafiz Saeed and Zakiur Rehman Lakhvi and 1993 Mumbai blasts accused Dawood Ibrahim etc. China, however, argued that Pakistan was doing enough and reporting on the action taken to APG.

India was not satisfied with the report submitted by Pakistan to APG as it listed only unnamed accounts, without identifying their origins and their implications for the group’s functioning. This was despite India furnishing enough details on Falah-e-Insaniyat, linked to LeT and Jamaat-ud-Dawah, publicly raising funds. Similar fund-raising at Hafiz Saeed’s rallies was also highlighted.

Turkey guts cash screening at customs

Turkey has revised its customs regulations to the point where one Turkish headline described it as “Unlimited cash entry into Turkey now legalized.” Turkey said the regulations are an improvement compared to the old policy, but experts contacted by Al-Monitor said there was nothing wrong with the previous regulations.

What’s so problematic about this development is that Turkey has been used as a key transit point for money and fighters for the Islamic State of Iraq and Syria. And that was when there were at least some nominal controls at customs points. Now it appears to be open season.

The other rotten element of this story is that Turkey appears to have waited to change these regulations until just after they came off of the international financial watchdog FATF’s grey list. It’s as though they knew they couldn’t get de-listed with regulations like these, so the bided their time.

Read all about it (h/t @moscow_ghost):

No questions asked about Turkey’s suitcases full of cash

Author Pinar Tremblay Posted May 14, 2015

The Turkish Ministry of Customs and Trade issued new regulations April 15 for entering and leaving Turkey with any amount of cash. The new Customs Code had passed without much public attention until early May, when the news broke with the headlines “Hot money days are over, now starts the black money days” and “Unlimited cash entry into Turkey now legalized.”

Umut Oran, deputy of the main opposition Republican People’s Party (CHP), submitted a parliamentarian query asking why the previous Customs Code was replaced with the new code, which would enable suspicious financial transactions, thus increasing the risk for money laundering, terror financing and tax evasion.

In a rather foggy statement, Minister of Customs and Trade Nurettin Canikli said the previous code was unclear, adding there were contradictory clauses in the code, and customs personnel could not be flexible. He said they had only simplified the code. “We had many complaints from exporters bringing money into the country,” Canikli said. “It could be from various countries, such as Iran, Iraq, Syria, the Balkans, where there are no banking services. Frankly, why does it matter if the money comes in cash or through a bank as long as it is money earned from exports? If this is dirty money, it will not be allowed to enter the country. There are no changes with regard to unrecorded cash.”

Yet, all pundits whom Al-Monitor contacted — bankers, customs officials, economists, senior economy editors of reputable news networks — agreed that the vagueness was introduced with the new code, and none were able to see what was wrong with the old code.

The previous Customs Code, which was six pages, was seen as compatible with EU regulations. When questioned about the compatibility of the 2015 codes with the EU, Canikli said, “We are not a member of the EU, we are Turkey.”

Indeed, there is sufficient reason to worry about the 2015 Customs Code, which is two pages shorter than the 2013 version. Yet, with those two deleted pages are red flags. Turkey has been on the gray list of the Financial Action Task Force (FATF) since 2011. The FATF took Turkey off its list of high-risk and non-cooperative jurisdictions only in October 2014. Turkey came to the brink of suspension of its membership in the FATF in October 2012. In its latest report, the FATF was still concerned with Turkey’s ability to institute a system that would identify and freeze terrorist assets. The report warned about Turkey’s definitions for “terrorism financing” and stated that Turkey’s procedures for freezing the assets of identified groups were too slow.

Emin Capa, CNN Turk’s senior economy editor, told Al-Monitor, “Turkey worked real hard to get off the gray list of the FATF. I doubt the government would enact any legislation that would reverse the decision.” Yet Capa had serious concerns about the new code. “There are three troubling topics. First, the sentence ‘passenger cannot be compelled to make a declaration at customs.’ What does this mean?” he asked. This line was added to the updated 2015 Customs Code, while many other items were excised. This line is indeed contradictory with the inspection regime…

 

Islamic terror money: recommended reading

• The U.K. has only frozen the bank accounts of 1 percent of British jihadists fighting for ISIS… more>>

• In response to the $655 million judgment against it, the PLO said “We will appeal.” Then the PLO blamed American victims of terrorism for having traveled to the Middle East in the first place… more>>

• It was excluded from one list of threats to the U.S., but sanctions against Hezbollah remain in effect, 100 percent… more>>

• International financial watchdog:  ISIS‘s “primary source of income comes from the territory it occupies”… more>>

This Valentine’s Day, give her diamonds. (Money is easier to launder that way.)

International financial watchdog FATF has issued a report that raises concerns about the use of diamonds to launder money in five countries that voluntarily disclosed information for the report.

India cited cases of overvaluation of diamonds sold abroad as a means of transferring illicit money back to India.  Trade-based money laundering is one of, if not the largest mechanism worldwide for transferring value without being detected.

As John Cassara and Avi Jorisch have noted in their book, On the Trail of Terror Finance, “diamonds are the most condensed form of physical wealth in the world. As a result, they are widely used in global laundering and value transfer schemes.”

Cassara and Jorisch also noted that Dubai, which maintains significant business relationships with diamond dealers in Mumbai, India, “are adept at invoice manipulation,” which Dubai traders can use to transfer significant amounts of value without transferring physical money.

Thanks to Sal Imburgia for first notifying Money Jihad about the report.

Pakistan scrambles to get off FATF’s gray list

The world’s leading financial standards body, FATF, alerted the international community earlier this summer that Pakistan and 11 other countries have failed to make sufficient progress in preventing money laundering and terrorist financing.

The newspaper Pakistan Today notes that if Pakistan fails in “coming up with proper and combating the financing of terrorism and anti-money laundering legislations the country may face severe financial sanctions that may affect its financial deals with the World bank, the Asian Development Bank and other top financial institutions” (h/t Zia Ur Rehman).  Pakistan should make reforms prior to FATF’s next meeting in October to avoid such sanctions.

Not so coincidentally, Pakistan’s central bank has rolled out a new requirement for Pakistani financial institutions to adopt nationwide software by Sept. 30 that will facilitate the filing of suspicious activity reports by bank employees.  When a certain customer or transaction is regarded as suspicious, the financial institutions would use this software to report their observations back to the central bank.

Anybody familiar with new software deployments, even under the best circumstances in well-developed high-tech nations, will recognize that this is an overly ambitious timetable to for implementation.  Widespread training and adoption of the software is unlikely to be complete by FATF’s deadline, but the stated goal may be enough to persuade FATF that Pakistan is moving in the right direction.

Pakistan has been cited before by the Financial Action Task Force for its financial regulatory deficiencies.  Despite the history of shortcomings, Western nations have continued to saturate Pakistan with foreign aid.  Without adequate money laundering an CFT controls in place, there is a high risk of any such military and development aid being abused by malicious actors without fear of detection or prosecution.

FATF’s terrorist charity typologies

The Financial Action Task Force, an international financial watchdog, has updated its “Recommendation 8” pertaining to government oversight of nonprofit organizations.  (Thanks to Arye Glozman who sent in a link to the report).

Overall, the revised recommendations show greater deference to the nonprofit sector and urge restraint by governments in regulating charities than the 2002 version.  This deference is a bit strange considering that using charities as vessels for funding terrorism has not decreased since 2002 then, neither in the West as illustrated by organizations such as the Holy Land Foundation and WAMY Canada, nor in the Middle East and Northern Africa where Gulf-based charities have played a central role in funding and arming Islamist rebels of the Arab Spring.

That being said, the FATF report does present a useful set of typologies to categorize four different types of terrorist “misuse” of nonprofit groups:

1. Front charities, where everybody from the donors to the charity workers to the beneficiaries knows that the charity is a sham designed to fund terrorism.
2. Organizations defrauding donors by telling them the money is going toward legitimate programs but then redirect the proceeds to terrorism.
3. Branch offices of charities defrauding headquarters by misleading the leadership about the branch’s actual programs.
4. Charity workers abusing their positions to distribute aid to militants.

The “charities” used by Osama bin Laden to funnel money from wealthy Saudi donors to Al Qaeda in the 1990s are a good example of type #1.  Jamaat-ud-Dawa in Pakistan is a good example of a front charity today, with donors and recipients understanding that the money is really for the Lashkar-e-Taiba terrorist group.  Many analysts would probably say that the Holy Land Foundation fell into type #2, with donors unwittingly funding Hamas (although some donors knew that their zakat was funding “resistance” against Israel).  Islamic Relief Worldwide can be associated with types #3 and #4 by having a branch office in Gaza that passed money along to Hamas, allegedly without the knowledge of headquarters in England.

Black money news: recommended reading

• Jiminy cricket! Our friend El Grillo says a “Stockholm suicide bomber falsely claimed student loans to fund his terrorist activity.”  The latest case of debt financing the jihad… more>>

• The good news is that Indian financial institutions are getting better about filing suspicious transaction reports. The bad news is that it makes it look like India has experienced a 300 percent increase in terrorist financing activity since last year.  Maybe they have… more>>

• Which way is the wind blowing?  Towards Iran.  Just ask Europe about its renewable energy sanctions waiver for Iranian wind power.  Thanks to Willauer Prosky for sending this in… more>>

• International financial watchdog FATF is supposed to counter the financing of terrorism. But lately it seems more focused on getting countries to pass meaningless laws and high-fiving itself… more from Dr. Rachel Ehrenfeld>>

• Money Jihad has covered the illicit wildlife trade, particularly in cheetahs by rich Arab buyers. But even we didn’t know how extensive the cheetah market has become in Dubai.  No reporting yet on how the smugglers use the revenues… more>>

Bangladesh overwhelmed by the financial jihad

Bangladesh continues to teach the world more and more about the collusion between Islamic sharia financial institutions and terrorist organizations.

First there was the revelation that IBBL uses zakat to fund terrorists.  Then there was the U.S. Senate’s damaging report about HSBC last summer which highlighted the British bank’s relationships with IBBL and another sinister sharia bank in Bangladesh, the Social Islami Bank Limited.

The revelations probably had something to do with FATF issuing a warning to Bangladesh to clean up its act and tighten the screws on terror financing.  The government of Bangladesh is indeed trying to, but the jihadi swamp there is so foul, and sharia banking is so dominant over conventional banking, that one wonders if the swamp can ever be drained.

This informative November article from the Eurasia Review provides some excellent background on the last 20 years of terrorist financing in Bangladesh and how the country wound up in its current stew with FATF:

Bangladesh: Banking For Terror – Analysis

By: SATP
November 12, 2012

By Sanchita Bhattacharya

In what seems a logical culmination of events, Bangladesh has been given time until February 2013 to address deficiencies in its fight against money-laundering and terror-financing to avert black-listing by the Financial Action Task Force (FATF)…

…[T]he U.S. Senate Permanent Subcommittee on Investigation, in its July 17, 2012, report titled U.S. Vulnerabilities to Money Laundering, Drugs and Terrorist Financing: HSBC Case History, disclosed that two Bangladesh-based banks, Islami Bank Bangladesh Limited (IBBL) and Social Islami Bank Limited (SIBL) were involved in terror financing. Regarding the functioning of HSBC, it was mentioned that the bank acted as a financier to clients seeking to route funds from countries like Mexico, Iran, Saudi Arabia, Syria, North Korea, Cuba, Sudan, Myanmar, Japan and Russia. The report also stated that the HSBC supplied dollars to IBBL and SIBL, ignoring evidence of their links to terror financing. HSBC did not submit these two banks to enhanced monitoring for suspicious transactions, despite recommendation by HSBC’s own Financial Intelligence Group (FIG).

According to the document, SIBL’s ownership stakes were held by two Saudi Arabia based non-governmental organizations (NGOs): the International Islamic Relief Organization (IIRO) – implicated in terrorist financing by the U.S. administration and included on the list of those prohibited to do business in the country; and Lajnat-al-Birr-al-Islam (Benevolence International Foundation, BIF), one of al Qaeda’s financers.

It was noted, further, that Saudi Arabia’s Al Rajhi Bank, also engaged in suspicious transaction, had a 37 per cent ownership in IBBL. HSBC also had maintained an association with Al Rajhi, a member of al Qaeda’s “Golden Chain” – a list including at least 20 top Saudi and Gulf States’ financial sponsors of al Qaeda, including bankers, businessmen, and former ministers.

The U.S. report on terror financing was not a recent finding. Since 9/11, the U.S. has taken strong steps to halt the flow of funds to terrorist organizations under Executive Order 13224 and related elements of the USA Patriotic Act.

The exposure of the unholy nexus between banking establishments and terrorist activities in Bangladesh can be traced back to the watershed country-wide serial bomb blasts on August 17, 2005. 459 explosions had been orchestrated in 63 of the country’s 64 Districts (excluding Munshiganj), killing three persons and injuring 100 others, on that date. After the serial blasts, which were orchestrated by the Jamaat ul-Mujahideen Bangladesh (JMB), the role of IBBL in promoting religious terror was brought under scrutiny, when Bangladesh Home Ministry constituted a committee to investigate terror financing. Subsequent to the arrest of the JMB ‘chief’ Shaikh Abdur Rahman and his second in command Siddiqui Islam alias Bangla Bhai, and the subsequent seizure of some banking documents, the investigation team documented suspicious transactions with IBBL branches in Sylhet, Gazipur and Savar, where violations of the Anti-Money Laundering Act were noticed. The Act which came into existence in 2002 was last amended on June 20, 2011. Rahman and Bangla Bhai were also found to have accounts with IBBL. The two were eventually hanged on March 30, 2007 – Rahman in Comilla Jail and Bangla Bhai in Mymensingh Prison.

Pakistan falters on terrorism funding

Much like the recent ultimatum given to Turkey for its insufficient laws against the financing of terrorism, FATF may blacklist Pakistan if it doesn’t update its laws against money laundering and the financing of militants.

In an editorial from the Express Tribune (h/t El Grillo), even the journalists of Pakistan realize that the government should stop pointing fingers, and comply with FATF’s guidance to do more to address the actual problem of terrorism, which has led to 40,000 deaths in Pakistan:

Blocking terrorist funding

The United Nations can slap Iran and North Korea-like sanctions on Pakistan next year if the Financial Action Task Force (FATF) standards on curbing money laundering and terror financing are not met. In an attempt to ward off this threat, Pakistan is now lobbying to seek international support and feels that the reason it is being targeted is because the FATF is heavily dominated by Western countries and India. Instead of being worried about the FATF’s member countries’ “political motives”, Pakistan should focus on meeting the requirements set by the international anti-money laundering watchdog, as curbing terrorism is something that should be our top priority in any case. Pakistan has suffered the most from home-grown terror; we have lost more than 40,000 lives in terror attacks. The fact that non-state actors have managed to launch cross-border terror attacks and planned attacks in other countries has put Pakistan in further trouble.

The government has reportedly improved the current legislation on counterterrorism financing, which will soon be presented before parliament for approval. The anti-terror legislation must be brought forward as soon as possible. It is an open secret how some terrorist organisations use to have links to elements within the establishment. Since the government was unable to stop these elements from pursuing a deeply flawed policy, the least it can do is put a firm stop to terrorist-funding by bringing in a strong anti-terror legislation. Money laundering is one of the primary sources of finance through which terrorist groups are able to fund their activities. If this source of financing can be cut off, we would be able to somewhat control our terror problems.

Pakistanis live in constant fear of terror attacks on both military and civilian targets. Ridding our soil of terrorists is a win-win for both Pakistan and the international community. It is about time we took this important step and brought forward the anti-terror legislation.

In a sane world, Pakistan would have already been recognized globally for its state sponsorship of terrorism years ago.  But to the degree that international pressure will bring about some marginal legal and financial reform, FATF’s standards are probably a helpful incentive.

Turkey failing to stop terror finance

The Financial Action Task Force has threatened to suspend Turkey if it doesn’t fix its laws on terror financing within the next four months.  The financial and money laundering watchdog organization says that Turkey doesn’t yet have a legal means for freezing terrorist assets.  How can Turkey be a good NATO ally if it can’t even identify and freeze the assets of terrorists in their banking system?

Turkey probably should have been suspended long ago for its sponsorship of IHH, the radical charity that manned the Gaza flotilla and has since been designated by Germany as a donor of Hamas, but FATF is more focused on financial regulatory frameworks.

From Bloomberg (h/t news link from TTFB) on  Oct. 19:

Turkey Given Four Months to Fix Terror Finance Law

By Selcan Hacaoglu

Turkey was given a February deadline by the OECD’s Financial Action Task Force to tighten laws blocking the financing of terrorist groups or face suspension from the organization.

Turkey needs to adopt legislation “to remedy deficiencies in its terrorist financing offense” and set up “a legal framework for identifying and freezing terrorist assets,” the Task Force, sponsored by the Organization for Economic Cooperation and Development, said on its website today at the end of a three-day meeting in Paris.

Failure to do so by Feb. 22 will result in Turkey’s suspension, it said. The Task Force said it is “deeply concerned by Turkey’s continued failure to take action.”

The group had warned in June it would “call upon its members to apply countermeasures” against Turkey if rules weren’t tightened by October. A terror financing bill drafted to address them is still held up in Turkey’s parliament. Exclusion by the Task Force could impede transactions with Western banks.

A suspension would hurt Turkey’s reputation and “alert the international financial world, possibly causing some problems in transactions,” Nihat Ali Ozcan, a terrorism analyst at the Economic Policy Research Foundation in Ankara, said by telephone today. “However, since nearly half of the Turkish economy is not registered, tightening rules might also put the government under domestic pressure from some circles, even including its grassroots supporters.”

Busy Schedule

Turkish officials say the measure has been delayed by a busy legislative schedule…