Posts Tagged ‘SAR’

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India’s currency change combats counterfeiting, but backdoor still wide open for money laundering

February 28, 2014

An email from our old friend Puneet aprised us to a new initiative in India to replace old currency notes with new notes with enhanced security features.

The reason for the change is speculated by many, including the BBC, to reduce the flow of black money (including undeclared, untaxed, counterfeit, and laundered money) through India’s economy.

Indeed, counterfeiting is a national crisis in India, and the new security features on the bills should help reduce the ability of counterfeiters to replicate the notes.

But in terms of getting illegally acquired but genuine notes off the street, this program doesn’t do much to cleanse the economy from the scourage of black money.

Live Mint points out that anybody who wants to exchange their old bills for new ones will be able to do so, and they won’t have to divulge their identities:

…If one looks at the RBI announcement, it is clear that the old currency notes can be exchanged for new ones at any bank branch from April to June 2014 without any questions being asked as to the name of the person giving the notes, her Permanent Account Number (PAN), address, etc. One can exchange the notes even at branches where one does not have a bank account. It is only after 30 June that one would have to give the name and PAN to exchange high denomination currency notes. Therefore, any person having undisclosed cash in her possession can easily exchange the old currency notes till June 2014 without disclosing her identity…

Also, Money Jihad notes that there doesn’t seem to be any provision in the new currency roll-out for bank tellers to report unusual amounts of cash that are brought in for exchange, or for them to report exchanges that they suspect are being made on behalf of undisclosed third parties.  Officials should move to incorporate such safeguards.

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Pakistan scrambles to get off FATF’s gray list

September 16, 2013

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.

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Jihadists pass zakat through Nigerian banks and charities for Boko Haram

March 25, 2013

The Nigerian newspaper Punch reports that financial regulators say Islamic charities are being used to fund Boko Haram.

Terrorist sympathizers are also structuring their bank transactions—a classic money laundering technique—in small enough increments to avoid triggering the filing of suspicious transaction reports by the banks they use.

This is the classic money jihad.  Fundamentalist Muslim leaders are obtaining zakat donations from extremist parishioners who believe, as the Koran and Hadith instruct them, that they should wage jihad with their lives and their wealth, and that the mujahideen are an eligible category of zakat recipients.

Read it all:

NFIU probes banks, charities over Boko Haram funds

March 23, 2013

Anti-terrorism experts in the Nigerian Financial Intelligence Unit have placed some banks and charities in the country under watch for allegedly aiding the transfer of funds by Boko Haram.

This is just as there are indications that the extremist group has been involved in recruiting suicide bombers from refugee camps run by the Polisario Front in Algeria.

NFIU sources told Saturday PUNCH that sympathisers of the group had been exploiting monetary practices embedded in Islamic culture, such as Zakat, donation to charities and alms-giving to channel funds to it.

It was learnt that the ease with which terror sponsors had been moving money for terror operations through the banks had also made the job more difficult.

“Being persuasive preachers, the terror commanders often persuade some Muslim Ummah to give Zakat to their jihadist cause. This brings in a lot of money used in terror operations. Security agencies are finding difficult to track this because it leaves no paper trail or bank details,” a source stated.

Saturday PUNCH also learnt that some financial institutions were also being unwittingly used to transfer funds meant for terrorist activities by sponsors and sympathisers of these groups, who move such money in bits to avoid detection.

These banks are said to have ignored the provisions of the law to help customers to transfer money in and out of the country without filing the compulsory suspicious transaction reports where necessary.

Under the Money Laundering (Prohibition) Act, 2011, the Terrorism (Prevention) Act, 2011, Central Bank of Nigeria Anti-Money Laundering/ Combating the Financing of Terrorism Regulation, 2009 (as amended) and other AML/CFT Guidelines, banks and other financial institutions must render suspicious transaction reports to the NFIU, properly identify persons conducting transactions and maintain a paper trail by keeping appropriate records of their financial transactions.

The records will enable law enforcement and regulatory agencies to pursue investigations of criminal, tax and regulatory violations and provide useful evidence in prosecuting money laundering and other financial crimes. The legal provisions were designed to help identify the source, volume and movement of currency and other monetary instruments transported or transmitted into or out of Nigeria, or deposited in financial institutions in the country.

The laws impose criminal liability on a person or financial institution that knowingly assists in the laundering of money or fails to report suspicious transactions conducted through it.

Saturday PUNCH learnt that many financial institutions had neglected to file reports of suspicious transactions with the NFIU, in order not to lose the accounts of high profile clients who move huge funds.

Some of these funds are believed to be proceeds of crime or money laundering, one of the sources said.

“Sometimes, the banks assist their clients to transfer huge amounts in small lodgements to avoid filing a suspicious transaction report as mandated by law; we know all these tricks and we are working to deal with them,” the security official said.

Findings indicated that the terror cells also rely on foreign donations from jihadist organisations in Iran, Lebanon, Libya, Yemen and Saudi Arabia camouflaging as charity groups.

NFIU had also expressed concern over the reluctance of banks to file STR, noting that the insurance industry was more compliant with regard to money laundering and financing of terrorism…

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Black money news: recommended reading

March 8, 2013

• 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 jihadmore>>

• 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>>

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Huge global problem, small UAE improvement

February 10, 2011

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.”

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Weekly word: structuring

September 8, 2010

Paul Freeman, an anti-money laundering investigator and educator, defines structuring as “the act of altering a financial transaction to avoid a reporting requirement.”

Criminals in the U.S. know that money services businesses are required to report transactions under the Bank Secrecy Act (BSA) if those transactions occur in a specific manner above a specific amount of money.  So they structure their transactions to fall just under the amount that would trigger a filing.

FinCEN created a 15 minute video about the BSA.  The middle five minutes are especially useful for the examples they include about structuring:

If an MSB suspects that a customer is engaging in structuring, they need to file a Suspicious Activity Report (SAR).  But when you have hawaladars who are in bed with their customers to avoid all reporting requirements, there’s only so much FinCEN can do…

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Increase in suspicious activity at casinos

July 19, 2010

A June 23 report by FinCEN, a division of the U.S. Treasury Department, shows a continuing increase in suspicious action reports (SARs) filed by casinos and card clubs.  SARs may involve money laundering, tax evasion, or terrorist financing.  FinCEN found that, “the number of filings in 2009 increasing 8% over those filed in 2008,” and included this graph in their report:

Suspicious activity reports from casinos

In separate guidance, FinCEN provides the following example scenarios related to terrorist financing that casinos should be on the lookout for:

  • customer requests suspicious wire transfers to financial institutions in countries known as friendly to terrorism;
  • customer requests wire transfer to charity that is unfamiliar to the casino or appears to have links to countries that are friendly to terrorism;
  • fund transfer to a customer or from a customer that is routed through multiple financial institutions or jurisdictions in an apparent attempt to disguise their origin; or
  • a customer may ask for airplane tickets, jewelry or other non-cash gifts (easily converted to cash) to be comped to a friend or to an unknown party.

The suspicious activity trend is well worth watching, but we should also remember that most terrorist dollars originate from zakat and are transferred by hawala.