Money laundering fuels crime and terrorism and remains a dangerous security threat.
The US national security danger posed by corruption and terrorist financing is as paramount as it was 20 years ago. As a matter of fact, we are falling behind on our ability to adequately combat this danger — The United States is currently ranked among the easiest places in the world to set up shell companies and launder dirty money. The terrorist landscape has changed, and so should our framework if we stand a chance in getting a hold of this national security danger.
“Anti-money laundering (AML) refers to the laws, regulations, and procedures intended to prevent criminals from disguising illegally obtained funds as legitimate income.” Currently, these regulations apply to banks and other financial institutions. While we do have a framework in place, the real question is, does it work? At the institution level, policies and procedures are created to prove they are adhering to the regulations in place. In practice, those activities related to KYC (Know Your Customer) are works in progress and require further review in order to properly enforce these regulations. Further, normal AML procedures simply do not help identify most terror financing as the amounts are small and are removed from the banking system., but they do discourage those actors from utilizing banking systems. However, inevitably, criminals will create more sophisticated approaches to counter our AML techniques. It is imperative our banks and other financial institutions create a culture of risk awareness.
Since 9/11, the one approach to combat terrorism has been conceptualized as “stop the flow of money.” While this approach may have been effective 20 years ago, these groups have adapted, and we must adapt with them if we are to effectively fight terrorism.
Pundits of this counter-terrorism financing approach have touted a superficial and narrow approach. The scale of the terrorist network and increasingly wealthy financiers have not been disrupted. Nor has it been easy to bring terrorist financing charges because of the difficulties in obtaining evidence and investigating crimes transnationally.
Traditionally, terrorist groups have been viewed as organizations or specific groups, but these organizations have shifted and expanded into more complex structures, various cells, or extremist individuals making it much more difficult to track and locate, let alone stop the flow of money.
Another key step in counterterrorism financing is following the money. This financial intelligence is gathered through several ways-through banks and institutions’ reporting, human intelligence, and signals intelligence. This information has been beneficial in identifying individuals connected to terrorism and uncover capabilities. The trail of funds can illuminate a myriad web and help connect the various networks or relationships.
With that being said, in order to reach the above ideal, those banking institutions, law enforcement, and intelligence organizations must form better communication and reporting channels. Otherwise, the information gets lost.
When coupled with other avenues of quickly financing terrorist activity such as crowdfunding, social media apps, wealthy financiers, and using other financial technologies makes this method even more difficult to track.
Disrupting terrorist activity requires a closer look at the terrorist groups or individuals involved — a more targeted approach. Our current methods of stopping the flow of money or tracking the flow of money are not sufficient to disrupt the activity — it simply allows us to get a better picture of the relationships and dynamics of the groups. Strengthening anti-money laundering regulations with additional focus on enforcement is imperative to combating terrorism.
AML Regulation & Non-Financial Actors. Our current AML framework requires banks and other financial institutions to monitor and report suspicious items as well as collect beneficial ownership information for entities. Because these institutions play such a large part in the financial system, they have been the focus of AML policies.
However, the industry has evolved as has the enemy. Bitcoin and real estate transactions are also part of criminal schemes. The anonymity offered with virtual currencies allows criminals to move money quickly. For example, in 2013 the government shut down the website Liberty Reserve for its connection with money laundering. However, regulations are still weak. Further, real estate is also a way corrupt individuals and terrorists launder money without having to worry about heavy regulation.
Non-financial professionals such as accountants, real estate advisors/professionals, and lawyers do not have the training or monitoring available that financial institutions do. This gap has been exploited by criminals and terrorists and requires a fresh look.
Lack of resources. The avenues for criminals to exploit are vast, and we simply do not have enough resources. Financial institutions, Financial Crimes Enforcement Network (FinCEN), and law enforcement agencies need more resources, such as risk and compliance officers, technology updates or more advanced technology, and investigators.
The truth is, while we have had successes, we need to rethink our AML regulations and Counter-Terrorism framework. Money launderers and terrorists can easily evade detection by exploiting our gaps. I encourage you to express your thoughts on the subject. What can we do to combat the increasingly sophisticated fraud schemes money launderers and terrorists have adopted?