Terrorist Organizations, Freezing of Assets
█ MARTIN J. MANNING
Monitoring the frozen assets of terrorist organizations is something that took on a new focus and urgency after the events of September 11, 2001. The United States and its allies have arrested about 2,290 suspected terrorists and terrorist financiers in 99 countries, designated about 250 individuals and organizations as terrorists or terrorist supporters, and seized more than $113 million in assets since the terrorist attacks of September 11, 2001.
On September 24, 2001, President George W. Bush stated, "We will direct every resource at our command to win the war against terrorists, every means of diplomacy, every tool of intelligence, every instrument of law enforcement, every financial influence. We will starve the terrorists of funding." The president directed the federal government to wage the nation's war against the financing of global terrorism, and we have continued to devote our resources and extensive expertise to fulfill this mandate. In actions and in words, the Treasury Department has shown that in the war against terrorism, financial intermediaries and facilitators who infuse terrorist organizations with money, materiel, and support will be held accountable along with those who perpetrate terrorist acts.
Immediately after the terrorist attacks, Congress worked closely with the Department of the Treasury, along with the Department of Justice and other agencies and departments, to make significant improvements in the law that enhances Treasury's ability to tackle the issue of terrorist financing in a more unified, cohesive and aggressive manner. Of particular importance to the counterterrorist efforts, the U.S. Patriot Act, enacted into law on October 26, 2001, expanded the law enforcement and intelligence community's ability to access and share critical financial information regarding terrorist investigations. In the months immediately following the September 11 attacks, the Department of the Treasury took six principal steps to identify and pursue financial underwriters of terrorism:
- worked with other U.S. Government agencies to implement Executive Order 13224;
- established Operation Green Quest, an inter-agency task force, to target financial networks and mechanisms;
- won the adoption of UN Security Council Resolutions 1373 and 1390 which require member nations to disrupt terrorist financing;
- engaged other multilateral institutions such as the Financial Action Task Force (FATF) and the international financial institutions to focus on terrorist financing;
- implemented the U.S. Patriot Act provisions to broaden and deepen access to critical financial information in the war against terrorist financing and to expand the anti-money laundering regulatory network;
- shared information across the federal government, with the private sector and among U.S. allies to crack down on terrorist financiers.
For the first time, the 2002 National Money Laundering Strategy (NMLS) contained such a strategy, with a discrete set of objectives and priorities targeting terrorist financing. Goal Two of the NMLS identified financial mechanisms or systems by which terrorist funding was initiated and sought to attack these mechanisms on an interagency and coordinated basis. The NMLS stated that terrorist groups tap into a wide range of sources for their financial support, including otherwise legitimate enterprises, such as construction companies, honey shops, tanneries, banks, agricultural commodities growers and brokers, trade businesses, bakeries, restaurants, and bookstores. The strategy focused on the following areas:
- targeted intelligence gathering;
- freezing of suspect assets;
- law enforcement actions;
- diplomatic efforts and outreach;
- smarter regulatory scrutiny;
- outreach to the financial sector; and
- capacity building for other governments and the financial sector through Treasury and other departmental technical assistance programs.
The NMLS is an integrated inter-agency strategy that draws on the expertise and resources of the Treasury Department, the Department of Justice, the Department of State and other departments and agencies of the federal government, as well as on foreign partners and on the private sector. Its mission is to first, identify appropriate financial targets through technology, intelligence, investigative resources, and regulations to locate and freeze the assets of terrorists, wherever they may be located.
Second, the NMLS freezes terrorist-related assets on a global scale. The U.S. government has frozen over U.S. $35 million in terrorist-related assets since September 11, 2001, and the international community has frozen an additional U.S. $78 million. More important than the dollars frozen is the dismantling of these financial pipelines, which served to transmit far greater sums of money for terrorist purposes. Third, the NMLS coordinates effective law enforcement actions, both domestically and internationally, against terrorist cells and networks. Internationally, Treasury has deployed Customs attachés and representatives from Treasury's Office of Foreign Assets Control (OFAC) in strategic embassies around the world to facilitate cooperation with host countries and regions in combating terrorist financing. Between September 12, 2001, and October 28, 2002, international law enforcement cooperation has led to approximately 2290 arrests of suspected terrorists and their financiers in 99 countries.
Fourth, together with other agencies, the NMLS uses existing diplomatic resources and regional and multilateral engagements to ensure international cooperation, collaboration and capability in dismantling terrorist financing networks. One of the bilateral initiatives is the U.S. Government's designation of Foreign Terrorist Organizations (FTOs). Under authorities provided by the Antiterrorism and Effective Death Penalty Act of 1996, the Secretary of State, in consultation with the Attorney General and the Secretary of the Treasury, has designated 35 groups as foreign terrorist organizations. The designations make it a criminal offense for American persons to knowingly provide funds or other forms of material support for these designated groups. Some other countries have used the designations as a guideline for their own efforts to curb terrorism financing.
Fifth, the NMLS implements smarter regulatory scrutiny by training the financial sectors to concentrate enhanced due diligence and suspicious activity monitoring on terrorist financing and money laundering typologies. Through the U.S. Patriot Act authorities, Treasury has been able to expand regulatory scrutiny to all businesses within the financial sector that may be susceptible to terrorist or criminal abuse. Sixth, the NMLS regulates expansion under the authorities of the Patriot Act in full consultation with the private financial sectors.
On October 1, 2002, FinCEN's (Financial Crimes Enforcement Network) secure link with financial institutions, the Patriot Act Communications System (PACS), became operational along with several capacity-building initiatives with other governments and the private sector with respect to terrorist financing. For example, Treasury is co-chairing a FATF Working Group on Terrorist Financing, which, among other issues, is charged with identifying technical assistance needs of various governments around the world. This Working Group is collaborating with donor states, the International Monetary Fund, the World Bank, and the UN Counter-Terrorism Committee in coordinating the delivery of technical assistance to those governments.
Actions Taken Against Terrorist Financing
The most visible and immediately effective tactic of U.S. terrorist financing strategy has been designating and blocking the accounts of terrorists and those associated with financing terrorist activity. Publicly designating terrorists, terrorist supporters and facilitators, and blocking their ability to receive and move funds through the world's financial system has been and is a crucial component in the fight against terrorism. On September 24, 2001, President Bush issued Executive Order 13244, "Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism."
The Department of the Treasury's Office of Enforcement, in conjunction with Treasury's Office of International Affairs and the Office of Foreign Assets Control, has helped lead U.S. efforts to identify and block the assets of terrorist-related individuals and entities within the United States and worldwide. Currently, 250 individuals and entities are publicly designated as terrorists or terrorist supporters by the United States, and since September 11th, over $113 million in assets of terrorists has been frozen around the world. Beyond simply freezing assets, these U.S. and international actions to publicly identify terrorists and their supporters advance global interests in terrorist financing and combating terrorism by:
- shutting down the pipeline by which designated parties moved money and operated financially in the mainstream financial sectors;
- informing third parties who may be unwittingly financing terrorist activity of their association with supporters of terrorism;
- providing leverage over those parties not designated who might otherwise be willing to finance terrorist activity;
- exposing terrorist financing "money trails" that may generate leads to previously unknown terrorist cells and financiers;
- forcing terrorists to use alternative and potentially more costly informal means of financing their activities; and
- supporting diplomatic effort to strengthen other countries' capacities to combat terrorist financing through the adoption and implementation of legislation that allows states to comply with their obligations under UN Security Council Resolutions 1390 and 1373.
Currently, over 165 countries and jurisdictions have blocking orders in force. Alternative financial mechanisms to combat terrorist financing conducted through these mechanisms include the following measures.
Protecting charities from terrorist abuse. Under the authority of E.O. [Executive Order] 13224, the United States has designated twelve charitable organizations as having ties to al-Qaeda or other terrorist groups. In addition, the United States has designated and blocked the assets of the largest U.S.-based Islamic charity, which acted as a funding vehicle for the HAMAS terrorist organization.
The FATF Special Recommendation VIII on Terrorist Financing commits all member nations to ensure that nonprofit organizations cannot be misused by financiers of terrorism. The United States is co-chairing the FATF Terrorist Financing Working Group that has recently produced an international best practices paper on how to protect charities from abuse or infiltration by terrorists and their supporters.
Efforts are underway to assist U.S.-based charities concerned that their distribution of funds abroad might reach terrorist-related entities and trigger a blocking action on the part of the Treasury Department—the Department has developed voluntary best practices guidelines for all U.S.-based charities. The Treasury Department developed these guidelines in response to requests from the Arab American and American Muslim communities, who reported a reduction in charitable giving and an increased apprehension among donors as a consequence of the Treasury Department's blocking of the three domestic charities.
Regulating Hawalas: informal value transfer systems. Terrorists have also used Hawalas and other informal value transfer systems as a means of terrorist financing. The word "hawala" (meaning "trust") refers to a fast and costeffective method for the worldwide remittance of money or value, particularly for persons who may be outside the reach of the traditional financial sector. In some nations, Hawalas are illegal; in others they are active but unregulated. It is, therefore, difficult to measure accurately the total volume of financial activity associated with the system; however, it is estimated that, at a minimum, tens of billions of dollars flow through Hawalas and other informal value transfer systems on an annual basis.
The United States has already taken steps to regulate Hawalas and informal value transfer systems. The U.S. Patriot Act requires money remitters (informal or otherwise) to register as "money services business" or "MSBs," thereby subjecting them to existing money laundering and terrorist financing regulations, including the requirement to file Suspicious Activity Reports (SARs). As a result, well over 11,000 money service businesses have registered with the federal government and are now required to report suspicious activities. The Act makes it a crime for the money transfer business owner to move funds that he knows are the proceeds of a crime or are intended to be used in unlawful activity. Failure by money service business principals to register with FinCEN and/or failure to obtain a state license also are federal crimes.
FATF Special Recommendation VI addresses this issue by demanding that countries register or license informal value transfer businesses and subject them to all of the FATF Recommendations that applies to banks and non-bank financial institutions. In addition, at a conference on hawala in the United Arab Emirates (UAE) in May, 2002, a number of governments agreed to adopt FATF Special Recommendation VI and shortly thereafter, the UAE government announced it would impose a licensing requirement on hawala operators operating within its borders. Participants at the UAE meeting drafted and agreed upon the Abu Dhabi Declaration on Hawala, which set forth a number of principles calling for the regulation of Hawalas .
Combating bulk cash smuggling. Bulk cash smuggling has proven to be yet another means of financing adopted by terrorists and their financiers. Customs has executed 650 bulk cash seizures totaling $21 million, including $12.9 million with a Middle East connection. Pursuing bulk cash smuggling from a domestic perspective, however, is not enough; disruption of this tactic requires a global approach.
Investigating trade-based terrorist financing. With respect to trade-based financial systems, authorized enforcement agencies continue to investigate the use of licit and illicit international trade commodities, for example, diamonds, gold, honey, and cigarettes, as well as narcotics, to fund terrorism. The U.S. Customs Service has developed a state-of-the-art database system to identify anomalous trade patterns for imports and exports to and from the United States. In the past, Customs has demonstrated this system to other nations, including Colombia, with excellent results.
Investigating terrorist cyber-fundraising activities. Terrorist groups now exploit the Internet to recruit supporters and raise terrorist funds. Developing a strategy to counter such cyber-fundraising activities is a responsibility that the Treasury Department assumed in its 2002 Anti-Money Laundering Strategy.
Operation "Green Quest." On October 25, 2001, Treasury created Operation Green Quest (OGQ) to focus the Treasury Department's financial expertise in the war against terrorist financing. OGQ identifies and attacks terrorist financing through a systemic financial approach. OGQ specializes in identifying financial mechanisms, such as illegal money remitters, and searching those systems to identify potential terrorist financing.
OGQ is led by the United States Customs Service, and includes the Internal Revenue Service, the Secret Service, the Bureau of Alcohol Tobacco and Firearms (ATF), Treasury's Office of Foreign Assets Control (OFAC), FinCEN, the Postal Inspection Service, the Federal Bureau of Investigation (FBI), and the Department of Justice. The financial expertise of the Treasury Bureaus, along with the exceptional experience of our partner agencies and departments, is also utilized in this operational attack on terrorist financing.
Internationally, the United States has worked not only through the United Nations on blocking efforts, but also through multi-lateral organizations and on a bi-lateral basis to promote international standards and protocols for combating terrorist financing. The Treasury Department has continuously engaged the international community in developing and strengthening counter-terrorist financing initiatives and regimes.
The United Nations 1267 Committee is responsible for UN designations of individuals and entities associated with al Qaeda, Osama bin Laden, and the Taliban. States wishing to propose a name for UN designation typically include a statement of the basis for designation, along with identifying information for the use of financial institutions, customs and immigration officials, and others who must implement sanctions. If no state objects to the proposed designation within 48 hours after a name is circulated by the Committee Chairman, the designation becomes effective. The 1267 Committee then puts out an announcement on its web site and all UN member states are required to freeze any assets held by the designated party(ies), without delays.
Financial Action Task Force (FATF). Since 1989, the 31-member FATF has served as the preeminent anti-money laundering multilateral organization in the world. The United States has played a leading role in the development of this organization. Capitalizing on this financial crime expertise, on October 31, 2001, at the United States' initiative, the FATF issued Eight Special Recommendations on terrorist financing, requiring all member nations to:
- Ratify the UN International Convention for the Suppression of the Financing of Terrorism and implement relevant UN Resolutions against terrorist financing;
- Criminalize the financing of terrorism, terrorist acts and terrorist organizations;
- Freeze and confiscate terrorist assets;
- Require financial institutions to report suspicious transactions linked to terrorism;
- Provide the widest possible assistance to other countries' laws enforcement and regulatory authorities for terrorist financing investigations;
- Impose anti-money laundering requirements on alternative remittance systems;
- Require financial institutions to include accurate and meaningful originator information in money transfers; and
- Ensure that non-profit organizations cannot be misused to finance terrorism.
Many non-FATF counties have committed to complying with the Eight Recommendations and over 90 non-FATF members have already submitted self-assessment questionnaires to FATF describing their compliance with these recommendations. Together with the Departments of State and Justice, Treasury will continue to work with the FATF to build on its successful record in persuading jurisdictions to adopt anti-money laundering and anti-terrorist financing regimes to strengthen global protection against terrorist finance.
As part of this effort, FATF has established a Working Group on Terrorist Financing (Working Group), which the United States is co-chairing with Spain, devoted specifically to developing and strengthening FATF's efforts in this field. At the most recent FATF Plenary in October, 2002, the Working Group, in collaboration with the World Bank, the International Monetary Fund, and the UN, identified a number of countries to receive priority technical assistance in order for them to come into compliance with the Eight Special Recommendations on Terrorist Financing.
Egmont Group. The Egmont Group represents 69 Financial Intelligence Units (FIUs) from various countries around the world. FinCEN is the FIU for the United States. The FIU in each nation receives financial information (such as SARs) from financial institutions pursuant to each government's particular anti-money laundering laws, analyzes and processes these disclosures, and disseminates the information domestically to appropriate government authorities and internationally to other FIUs in support of national and international law enforcement operations.
Successful results. International law enforcement cooperation has resulted in approximately 2290 arrests of suspected terrorists and their financiers in 99 countries from September 12, 2001 through October 28, 2002. Some of these arrests have led to the prevention of terrorist attacks in Singapore, Morocco and Germany, and have uncovered al-Qaeda cells and support networks in Italy, Germany, Spain, the Philippines and Malaysia, among other places. In addition, soon after September 11th, a Caribbean ally provided critical financial information through its FIU to FinCEN that allowed the revelation of a financial network that supported terrorist groups and stretched around the world.
On September 24, 2001, President Bush implemented Executive Order 13224 which expands the U.S. government's power and authority to target terrorist organizations to freeze and block their assets. In that same period, the United Nations adopted UN Security Council resolutions 1373 and 1390, directing member states to criminalize terrorist financing and adopt regulatory regimes to detect and deter terrorist financing. On August 29, 2002, the Office of Foreign Assets Control established the Specially Designated Nationals (SDN) and Blocked Persons List, which is updated as groups and individuals are added or removed. Most recently, in March 2003, the U.S. Department of the Treasury created a new unit to set strategy and policy for combating terrorist financing. The new Executive Office for Terrorist Financing and Financial Crimes would work with the financial services industry to locate terror-related accounts and groups. It will also over-see Treasury's Financial Crimes Enforcement Network (FINCen), an investigative and information-gathering bureau, and the Office of Foreign Asset Controls (OFAC), which carries out U.S. orders blocking bank accounts and freezing assets of suspected terrorist groups and their supporters.
In order to continue Treasury's leadership on these critical issues, the new Office is charged with developing and implementing U.S. government strategies to combat terrorist financing domestically and internationally (in concert with Treasury's International Affairs Task Force on Terrorist Financing); developing and implementing the National Money Laundering Strategy, as well as other policies and programs to fight financial crimes; participating in the department's development and implementation of U.S. government policies and regulations in support of the Patriot Act, including outreach to the private sector; joining in representation of the United States at focused international bodies dedicated to fighting terrorist financing and financial crimes; and developing U.S. government policies relating to financial crimes.
█ FURTHER READING:
Blunden, Bob. The Money Launderers: How They Do It, and How to Catch Them at It. Chalford, England: Management Books, 2001.
Doyle, Charles. The USA PATRIOT Act: A Legal Analysis. Washington, D.C.: Congressional Research Service, Library of Congress, 2002.
Lilley, Peter. Dirty Dealing: The Untold Truth about Global Money Laundering. London: Kogan Page, 2000.
Naylor, R. T. Wages of Crime: Black Markets, Illegal Finance, and the Underworld Economy. Ithaca, NY: Cornell University, 2002.
Savla, Sandeep. Money Laundering and Financial Intermediaries. The Hague and Boston: Kluwer Law International, 2001.
U.S. Congress. House Committee on Financial Services." Dismantling the Financial Infrastructure of Global Terrorism." Hearing, 107th Congress, 1st Session, Washington, D.C.: Government Printing Office, 2001.
——. House Committee on Financial Services. Subcommittee on Oversight and Investigations. "ATRIOT Act Oversight: Investigating Patterns of Terrorist Financing." Hearing, 107 Congress, 2nd session, February 12,2002. Washington, D.C.: Government Printing Office, 2002.
U.S. Department of the Treasury. Financial Crimes Enforcement Network. "U.S. Compendium of Selected Anti-Money Laundering Statutes and Rules." Vienna, VA:1997.
Morais, Herbert V. "The War against Money Laundering, Terrorism, and the Financing of Terrorism," Lawasia Journal (2002): 1–32.
Serino, Robert B. "Money Laundering, Terrorism, and Fraud." ABA Bank Compliance (March/April 2002): 23–26.
Shams, Heba. "Using Money Laundering Control to Fight Corruption: An Extraterritorial Instrument." International Financial and Economic Law no. 27, 2000).
International Monetary Fund. "Enhancing Contributions to Combating Money Laundering: Policy Paper." < http://www.imf.org/external/np/ml/2001/eng/042601.htm > (April; 14, 2003).
International Monetary Fund. Financial System Abuse, Financial Crime and Money Laundering: Background Paper. < http://www.imf.org/external/np/ml/2001/eng/021201.htm > (April 14, 2003).
U.S. Treasury Department. "High Intensity Money Laundering and Related Financial Crimes Areas (HIFCAs) Designations" < http://www.ustreas.gov/fincen/hifcadesignations.html > (April 14, 2003).
U.S. Treasury Department, Office of Foreign Assets Control. "Specially Designated Nationals and Blocked Persons." < http://www.ustreas.gov/offices/enforcement/ofac/sdn/t11sdn.pdf > (April 14, 2003).
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