Banks have work cut out fighting terror finance

SWITZERLAND: As banks get drawn deeper into efforts to counter terrorism, the skills they have developed to trace drug traffickers and criminals are used increasingly to help authorities catch potential bomb plotters. But despite investing large sums to obstruct drug traffickers from using banks to launder money, lenders still face a big challenge identifying terror networks in their midst.

Banks say they are becoming more adept at spotting account holders who receive suspicious cash deposits, which could be the proceeds of crime, and quickly passing on that information to investigators who might then find links with terrorism.

“It is possible to identify a criminal by his profile and the authorities may link that person to a terrorist organisation,” said the head of money-laundering prevention at a major European bank, who asked not to be identified. “I know of one case of a lead which came from the traditional money-laundering side which, when received by the authorities, allowed them to make the link (with terrorism),” he added.

But banks say they are still in the dark when it comes to trawling through transactions and spotting patterns that might immediately identify an account holder with potential ties to terrorism.

“Is it possible to identify a terrorist beforehand by way of his financial profile? The answer is absolutely not,” said the anti-money-laundering executive. Bomb plotters, real or suspected — such as a group of British Muslims charged this week with conspiring to blow up airliners crossing the Atlantic — can escape the most sophisticated surveillance because the amount of money needed to fund an attack is so low.

“The sums of money needed are in the low thousands of pounds to run a bombing operation,” said Norman Bernard at First Consulting, a financial services consultancy.

Many suspects have no criminal records, making their identification even more difficult.

Banks are also investing heavily in improved searching and matching software, which allows them quickly to home in on account holders when the authorities present them with lists of terrorism suspects to run checks on.

“A key battle we have won is that financial institutions are keeping records that need to be there, and providing them to intelligence institutions when they need them,” said Vincent Schmoll, at the Paris-based Financial Action Task Force (FATF). The FATF groups 31 countries and helps governments to tackle the financing of terrorism and prevent the proceeds of crime from passing through the global financial system.

Despite such progress, banks say that it is becoming harder to spot money of illegitimate origin in the system, as criminals and terrorism networks resort to techniques such as transfer pricing between companies to move money across borders.

“The days of customers depositing cash over the counter without questions being asked are over,” said the banker responsible for fighting money-laundering.

“But once money is in the system, how do you identify it as illegitimate? Transfer pricing and trade-based money laundering is a massive challenge for the banks,” he added.

Money can also be transferred across borders using informal methods dating back centuries that circumvent the banking system altogether, such as hawala, a broker-based system used widely in Pakistan and the Middle East.

Zurich, Wednesday, Reuters