Concerns mount over Bangladesh

FATF, the world’s leading international watchdog for money laundering, terror funding, and financial standard setting, is concerned that Bangladesh hasn’t done enough to criminalize terrorist financing, and isn’t freezing suspect accounts.

FATF is rightly concerned.  Just take Islami Bank Bangladesh Limited as an example.  IBBL is Bangladesh’s premier sharia bank, and it has used its wealth to fund jihad militants, according to intelligence from Bangladesh’s own interior ministry.  Naturally, a sharia bank that funds terrorism isn’t going to freeze the accounts, or even screen the accounts, of terrorist customers. 

(By the way, IBBL is currently attempting to push farmers into loans that they may not need.  Predatory lending by sharia banks should be condemned as vigorously as predatory lending by conventional banks.)

From Gulf Times on Mar. 4:

Dhaka urged to curb terror financing

By Mizan Rahman

Dhaka—The Financial Action Task Force (FATF), a global body to combat money laundering and terror financing, has asked Bangladesh to freeze terrorist assets and confiscate funds relating to money laundering.

A senior official in the finance ministry said yesterday that Bangladesh might see its place coming down in the global scenario from the current ‘grey list’ to the ‘black list’ if the government failed to implement the action plan of FATF on money laundering by June.

The warning from FATF and its action plan was conveyed to Bangladesh from a recent plenary meeting of the task force, held in Paris in mid-February.

Bangladesh Bank (BB) Deputy Governor Abu Hena Mohammed Razee Hassan led a four-member delegation to the meeting.

“The meeting was a groundbreaking one as it lauded Bangladesh for several steps to combat money laundering and for scrapping the fiscal measure allowing black money in share business,” a delegation member said.

“The FATF has asked us to implement a large number of measures to combat terror financing and money laundering at the earliest possible to avert a possible degradation of our global status from ‘grey list’ to ‘black list,” he added.

According to the action plan, Bangladesh has been asked to adequately criminalise money laundering and terrorist financing, establish and implement adequate procedures to identify and freeze terrorist assets, implement adequate procedures for confiscation of funds related to money laundering, ensure a fully operational and effectively functioning financial intelligence unit, improve suspicious transaction reporting requirements, improve international co-operation in money laundering and issue guidance to capital market intermediaries to effectively extend the anti-money laundering obligations.

The FATF is an inter-governmental body, the purpose of which is to develop and promote policies, both on national and international levels, to combat money laundering and terror financing.

The task force is a ‘policy making body’ which works to generate the necessary political will to bring about national legislative and regulatory reforms.

Earlier, the FATF in a report in 2010, said Bangladesh was still non-compliant in at least 10 key areas in attaining the international standard in the sector of money laundering and terror financing.

The government had formed a national co-ordination council, headed by Finance Minister A M A Muhith, to implement the recommendations of FATF.

A ministry of finance official said a joint effort by ministries of finance and home and central bank is needed to implement the action plan.

FATF: Iran, Pakistan, Indonesia fail to criminalize terrorist financing

The world’s leading financial watchdog has added Pakistan and Indonesia to its blacklist of deficient jurisdictions.  Iran was also once again named by FATF for its failure to criminalize the funding of terrorism.  What they all have in common is that none of them has sufficient laws on the books to combat the financing of terrorism or freeze terrorist assets.

Here are some excerpts from FATF’s Feb. 16 statement:

The FATF remains particularly and exceptionally concerned about Iran’s failure to address the risk of terrorist financing and the serious threat this poses to the integrity of the international financial system, despite Iran’s previous engagement with the FATF.

The FATF reaffirms its call on members and urges all jurisdictions to advise their financial institutions to give special attention to business relationships and transactions with Iran, including Iranian companies and financial institutions. In addition to enhanced scrutiny, the FATF reaffirms its 25 February 2009 call on its members and urges all jurisdictions to apply effective counter-measures to protect their financial sectors from money laundering and financing of terrorism (ML/FT) risks emanating from Iran. FATF continues to urge jurisdictions to protect against correspondent relationships being used to bypass or evade counter-measures and risk mitigation practices and to take into account ML/FT risks when considering requests by Iranian financial institutions to open branches and subsidiaries in their jurisdiction. Due to the continuing terrorist financing threat emanating from Iran, jurisdictions should consider the steps already taken and possible additional safeguards or strengthen existing ones.

The FATF urges Iran to immediately and meaningfully address its AML/CFT deficiencies, in particular by criminalising terrorist financing and effectively implementing suspicious transaction reporting (STR) requirements. If Iran fails to take concrete steps to improve its CFT regime, the FATF will consider calling on its members and urging all jurisdictions to strengthen counter-measures in June 2012…

Indonesia has taken significant steps towards improving its AML/CFT regime, including by enacting AML legislation in 2010 and developing draft comprehensive CFT legislation. Despite Indonesia’s high-level political commitment to work with the FATF and APG to address its strategic AML/CFT deficiencies, Indonesia has not made sufficient progress in implementing its action plan, and certain strategic AML/CFT deficiencies remain. Indonesia should work on implementing its action plan to address these deficiencies, including by: (1) adequately criminalising terrorist financing (Special Recommendation II); (2) establishing and implementing adequate procedures to identify and freeze terrorist assets (Special Recommendation III); and (3) amending and implementing laws or other instruments to fully implement the 1999 International Convention for the Suppression of Financing of Terrorism (Special Recommendation I). The FATF encourages Indonesia to address its remaining deficiencies and continue the process of implementing its action plan…

Pakistan has taken significant steps towards improving its AML/CFT regime, including by enhancing the capacity of its FIU, approving an AML/CFT strategy, and by ensuring training is provided to relevant stakeholders. Despite Pakistan’s high-level political commitment to work with the FATF and APG to address its strategic AML/CFT deficiencies, Pakistan has not made sufficient progress in implementing its action plan, and certain AML/CFT deficiencies remain. Specifically, Pakistan needs to enact legislation to ensure that it meets the FATF standards regarding the terrorist financing offence (SR II) and the ability to identify, freeze, and confiscate terrorist assets (Special Recommendation III). The FATF encourages Pakistan to address the remaining deficiencies and continue to implement its action plan, including by demonstrating effective regulation of money service providers and implementing effective controls for cross-border cash transactions (Special Recommendation VI and Special Recommendation IX).

Weekly word: PEP

Admittedly, it’s been a lot longer than a week since our last effort at defining terms related to the money jihad.

This latest addition to the glossary will be “politically exposed person” (PEP):

PEPs are individuals who are or have been entrusted with prominent public functions in a foreign country, such as heads of state or government; senior politicians and party officials; senior executive, judicial, or military officials; and senior executives of state-owned corporations.*

PEPs normally include family members of government officials, but do not normally include low or mid-level government officials.

Being able to identify and screen PEPs can help prevent the transfer of ill-gotten funds from, for example, corrupt politicians to banks overseas.  But that is easier said than done.

In August, MoneyLaundering.com reported:

Three intergovernmental groups are questioning the effectiveness of anti-money laundering controls meant to curb abuses of corrupt political figures who steal from their countries.

The World Bank and United Nations said in a joint June 21 report that at least 74 of 124 jurisdictions examined have not complied with anti-money laundering (AML) recommendations to quash kleptocracy by political figures. The record indicates that financial institutions and the agencies that regulate them may be “deficient” in enforcing the controls, the report said.

In a separate report published July 29, the Paris-based Financial Action Task Force (FATF) warned banks and other companies that government officials, also known as politically exposed persons (PEPs), can exploit the “natural advantages” of their positions to launder ill-gotten funds through institutions, and then stymie investigations into the crimes.

The three organizations recommended requiring financial institutions to review their PEP accounts annually, sharing suspicious activity reports on the accounts of foreign politically-tied figures with their home country and eliminating the distinction between foreign and domestic PEPs.

The questionable effectiveness of PEP screening sheds further doubt on the world’s approach to preventing money laundering and terrorist financing.

The PEP concept is particularly relevant during the Arab Spring, where rulers like Muamar “Daffy” Qaddafi, Bashar “Butcher” al-Assad, Hosni Mubarak, and other leading thugs are being accused of holding secret bank accounts of wealth stolen from their people.

* World Bank, Combating money laundering and the financing of terrorism:
a comprehensive training guide, Volume 3, Part 1 (Washington D.C.:  World Bank Publications, 2009).

IMF report damns useless FATF standards

The most important international anti-terror financing organization in the world, the Financial Action Task Force (FATF), has been ridiculed by a report from the International Monetary Fund (IMF).

Of course, all these people are members of the global power establishment, so they use a lot of polite words, but it pretty much boils down to a comment from IMF employee Jody Myers that the modern FATF style anti-money laundering (AML) system “isn’t helping” and “why are we doing it.”

Indeed, the international system is cumbersome, anti-business, anti-bank, anti-investor, anti-consumer, and only anti-terrorist on rare, almost coincidental occasions.  Everybody who uses a bank gets treated like a terrorist, and the real terrorists escape notice through the sheer volume of bank data being transferred around the world.  Nobody wants to discuss a possible solution which involves profiling bank customers.

From MoneyLaundering.com on Aug. 2:

AML Standards Should Be Revised to Better Root Out Crime, Says IMF

By Brian Monroe

Intergovernmental evaluations of how nations fight money laundering and terrorist financing often do not accurately reflect whether those efforts are effective, the International Monetary Fund said in a report Wednesday.

The jurisdictional examinations conducted by the Paris-based Financial Action Task Force (FATF) and other groups that follow its 49 standards “do not correlate” with whether a country is involved with narcotics trafficking, the organization said in a 97-page report.

Huge global problem, small UAE improvement

Just like last year, the United Arab Emirates has reported a significant increase in the number of suspicious activity reports (SARs) submitted by companies to the central bank (hat tip to AML-CFT blog).  The National reported on Jan. 31 that it’s not clear whether the increase means companies are being more vigilant or if money laundering has actually increased.

It probably is a signal of actual improvement in AML practices; nevertheless, the improvement is still overshadowed by:  1) the continued financial survival of the Taliban, 2) a slight but apparent financial rebound by Al Qaeda, and by 3) the continued reports of illicit cash passing back and forth between Kabul and Dubai.  Here’s The National’s account:

Financial companies reported 55 per cent more suspicious money transfers to the UAE Central Bank last year compared to 2009, the head of the regulator’s anti-money laundering unit said today.

The Central Bank received 2,711 tip-offs from insurers, banks, investment companies and other financial services firms last year, said Abdulrahim Mohamed al Awadi, an executive director and the head of the anti-money laundering and suspicious cases unit. That compared to 1,750 reports in 2009.

The rise “shows the effectiveness” of efforts to educate financial firms about their responsibilities to report suspicious financial activity, Mr al Awadi said. It was not clear, however, whether the rise was due to increased vigilance or an upturn in money-laundering activity.

Moves to track and prosecute money laundering propagated globally following the terrorist attacks on the US of September 11, 2001 as nations including the UAE enacted laws and increased monitoring of transactions suspected of financing terrorism. The UAE passed a Federal law in 2002 covering the detection and reporting of suspicious transactions.

“You all have a responsibility in partnership with the regulators in ensuring that the UAE financial system stays clean and protected from being abused by criminals, money launderers and terrorist financiers,” he told a seminar for insurers and insurance brokers.

The seminar was the first of a series planned this year for the insurance, banking and investment sectors to update executives on developments in international money-laundering reporting rules. As part of the GCC, the UAE is a member of the Financial Action Task Force, a global body that aims to stamp out terrorist financing and money laundering.

Insurance companies in the UAE have long been identifying and reporting suspicious transactions, Mr al Awadi said, but “they have to understand further what are the obligations required under the best practices worldwide.”

Weekly word: blacklist

Random House defines a blacklist as “a list of persons under suspicion, disfavor, censure, etc.”

We often apply the term “blacklist” to any terrorist designations by the U.S. State Department, Treasury Department, the United Nations, and FATF.  But each organization’s blacklisting carries its own specific meaning.

The State Department designates foreign terrorist organizations (FTOs) under Section 219 of the Immigration and Nationality Act.  Designation serves as a stigma and a sign of American disapproval, and members of designated FTOs are “inadmissible and removable” from the United States.

Treasury designates and sanctions countries and individuals under a mix of executive and Congressional authorities, usually within the context of identifying people, companies, or countries that have some role in financing terrorism, not just espousing terrorist views or even engaging in terrorist acts.  Treasury designations require American banks to freeze any accounts held by the designee and prevent Americans from doing business with the terrorists.

Designations by the United Nations, for example, blacklisting by the UN’s Al-Qaida and Taliban Sanctions Committee, result in asset freezes, bans on international travel, and arms embargos in accordance with Security Council Resolution 1267.

FATF identifies countries that are sponsors of or have such weak controls that they are high risks for money laundering.  Officially FATF calls them “non-cooperative countries,” but it’s a blacklist.  Corporations in FATF member countries should avoid doing business with blacklisted countries or be at risk of indirectly helping those countries launder money for terror.

By the way, FATF is based in Paris, and they should probably blacklist France itself for its steadfast business relationships with Iran, itself a blacklisted country.

Weekly term: beneficial owner

There are two types of owners in this world:  those who own it on paper, and those who really own it.  The “beneficial owner” is a fancy way of referring to the real owner.

The Financial Action Task Force, the foremost anti-money laundering international body, offered this definition of beneficial ownership in their publication, The Financial War on Terrorism:  A Guide*:

Beneficial owner refers to the natural person(s) who ultimately owns or controls a customer and/or the person on whose behalf a transaction is being conducted.  It also incorporates those person who exercise ultimate effective control over a legal person or arrangement.

This is especially relevant within the context of jihadist financing because Saudi Arabia, Iran, their “charities,” their millionaires, and their terrorist groups use shell companies, front investors, puppet charities, correspondent banks, secret terror cells, and other cat’s-paw forces to buy assets in the West.  The hidden actor is the beneficial owner.

The Incorporation Transparency and Law Enforcement Assistance Act, a bill sponsored by Sen. Carl Levin, is still lingering around in the Senate.  Levin says that S. 569 would help expose beneficial ownership of, for example, Iranian-backed ventures.  In theory, that would be a good thing, but when you read the actual bill it’s actually just a law to help foreign countries crackdown on tax evasion by their own citizens doing business in America, and the bill’s “beneficial owner”… is Carl Levin…

*FATF, The Financial War on Terrorism:  A Guide (Paris:  OECD Publications Service, 1999).

Sanctions be damned. France ♥ Iran

The Los Angeles Times reports that French automaker Peugeot is expanding its business in Iran despite international sanctions and being blacklisted by Paris-based FATF.

The  blacklisting is especially relevant because FATF’s action essentially warned countries around the world that if they do business with Iran, there is a significant risk that the profits will be laundered to support illegal activity (ie, Iranian nuclear ambitions).

From the Los Angeles Times blog on Feb. 21:

French President Nicolas Sarkozy talks a tough game when it comes to imposing sanctions against Iran over its nuclear program.

But that hasn’t stopped France’s second-biggest automaker, PSA Peugeot Citroen, from expanding its presence in the Islamic Republic with the upcoming launch of the Peugeot 207i, an Iranian-made version of the Peugeot 207, which is set to roll out in late March.

Peugeot 206s, assembled in Iran under a licensing deal, have proved enormously popular in Iran.

Pierre Foret, a Peugeot representative in Iran, was quoted as saying by Agence France-Presse that the launch of the 207i was part of the firm’s effort to “develop its market” in the Islamic Republic.

The 207i will be priced at $15,500 to $19,000, an Iranian auto official was quoted as saying by the website of the state-owned Press TV.

Meanwhile, two large German insurance companies, Allianz and Munich Re, have announced plans to pull out of Iran, apparently succumbing to international pressure.

Tut, tut, Turkmen

In addition to blacklisting Iran last week as a significant source of money laundering and terrorist financing, the Financial Action Task Force has declared that Turkmenistan has failed to address long-standing AML/CFT deficiencies.  FATF tried their hardest to sound polite in their public statement:

The FATF welcomes Turkmenistan’s continued progress in addressing its AML/CFT deficiencies, including by taking steps towards establishing a Financial Intelligence Unit (FIU). Given that the FIU is not yet operational, the FATF reiterates its 25 February 2009 statement informing financial institutions that these deficiencies constitute an ML/FT [money laundering/terrorist financing] vulnerability in the international financial system and that they should take appropriate measures to address this risk. Turkmenistan is urged to continue to take steps to implement an AML/CFT regime that meets international AML/CFT standards and to work closely with the Eurasian Group and the International Monetary Fund to achieve this.

This seems to be the latest in a series of black marks for the small, Central Asian state.  Money Jihad readers may remember that Turkmenistan was recently ranked 171 out of 179 countries in terms of economic freedom.  That put Turkmenistan in the “repressed” category just a couple notches below Iran.

The State Department’s annual report of religious freedom for 2009 noted several additional problems.  They found that in Turkmenistan (which is majority-Sunni Muslim with a large Russian Orthodox Christian minority), “Mosques and Muslim clergy are state-sponsored and financed. The Russian Orthodox Church and other religious groups are independently financed.”  The report also that Turkmenistan funded air fare for the hajj by some of their Muslim citizens.

FATF blacklists Iran

The Financial Action Task Force, the world’s major watchdog for anti-money laundering and terrorist financing measures, has identified “substantial deficiencies” in Iran.  From FATF’s public statement yesterday:

The FATF welcomes the recent steps that Iran has taken to engage with the FATF, but remains concerned by Iran’s failure to meaningfully address the ongoing and substantial deficiencies in its anti-money laundering and combating the financing of terrorism (AML/CFT) regime. The FATF remains particularly concerned about Iran’s failure to address the risk of terrorist financing and the serious threat this poses to the integrity of the international financial system. The FATF urges Iran to immediately and meaningfully address its AML/CFT deficiencies, in particular by criminalising terrorist financing and effectively implementing suspicious transaction reporting (STR) requirements.

The FATF reaffirms its call on members and urges all jurisdictions to advise their financial institutions to give special attention to business relationships and transactions with Iran, including Iranian companies and financial institutions. In addition to enhanced scrutiny, the FATF reaffirms its 25 February 2009 call on its members and urges all jurisdictions to apply effective counter-measures to protect their financial sectors from money laundering and financing of terrorism (ML/FT) risks emanating from Iran. FATF continues to urge jurisdictions to protect against correspondent relationships being used to bypass or evade counter-measures and risk mitigation practices, and to take into account ML/FT risks when considering requests by Iranian financial institutions to open branches and subsidiaries in their jurisdiction. If Iran fails to take concrete steps to improve its AML/CFT regime, the FATF will consider calling on its members and urging all jurisdictions to strengthen counter-measures in June 2010.

Several countries were cited for deficiencies, and The Guardian notes that, “This the first time in 10 years that the taskforce has published such an extensive list.” 

However, Iran was the only country FATF singled out as a jurisdiction that FATF member nations should take active countermeasures to guard themselves against.

One wonders whether Venezuela, a member of the Caribbean Financial Action Task Force (a FATF regional body) will heed FATF’s urgent warning, or whether Venezuela will continue its financial relationship with Iran including support for its acquisition of uranium.

UAE touts money laundering “progress”

As Deputy Secretary of the U.S. Treasury Department Neal S. Wolin continues his tour and meetings in the United Arab Emirates today, the Central Bank of the UAE is trumpeting an increase of money laundering cases from 1200 in 2008 to 1700 in 2009.

Some people would be embarrassed that money laundering cases have increased, but not Abdulrahim Al Awadi, head of investigations at the UAE Central Bank.  He’s casting it as a healthy sign that UAE banks have increased their compliance with anti-money laundering standards and reporting.  From Emirates Business 24/7:

The UAE detected more than 1,700 suspected cases of money laundering in 2009, The sharp increase in cases against the previous year is due to stricter compliance by banks and other financial institutions, a Central Bank official said yesterday.

The Central Bank said it also received more than 11,800 reports on cash declaration last year as part of its intensified crackdown on illegal money, but denied recent reports that real estate firms were being used as channels for such funds.

The head of the Central Bank’s Anti-Money Laundering and Suspicious Cases Unit (AMLSCU) said the UAE was enforcing one of the strictest legislations in the world to fight money laundering, financing of terrorism and weapons of mass destruction, tax evasion and corruption.

“In 2009, the AMLSCU received 1,729 cases of suspected money laundering compared with 1,170 cases in 2008,” said Abdulrahim Al Awadi, Head of AMLSCU at the Central Bank.

“The reason for this increase is that the UAE economy is growing and the country is becoming more open to other economies and societies. But the more important reason is the intensive training courses we are conducting for bankers and staff at other financial institutions. Banking staff have become more experienced in detecting such cases and are showing stronger co-operation with the authorities and more compliance with existing laws. Another key factor is that we have introduced stiffer laws and new mechanisms to combat money laundering,” he said.

Speaking to reporters at a briefing to announce a regional anti-money laundering meeting in Abu Dhabi next week, Al Awadi said 683 suspected cases in 2009 were referred to the competent authorities for further interrogation, while 169 are now in court. The remaining cases are being investigated by the unit…

Al Awadi also flatly denied claims that UAE real estate markets are rife with laundered cash.  I hope that Deputy Secretary Wolin confronted UAE’s Central Bank governor with these concerns during their meeting yesterday.