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This week's feature article ends our 3-part series on the financing of terrorism with a review of technology used in the investigations now under way, as discussed last week. Next week, we turn our attentions to the ongoing conflict in Jammu-Kashmir.

The second half of the newsletter provides a review of events that occurred in the past week.

For more background on the material covered in this newsletter, click on the links herein. All linked additional information is from the TerrorismCentral Library.

Financing of Terrorism, Part Three: Technology

Investigating the sources of terrorist financing relies on the skills and tools of a very specialized kind of detective: the forensic accountant.

A cross-disciplinary function, forensic accounting arose from the realization that typical audits can only detect compliance with standard industry practices. In order to truly identify, analyze, and respond to criminal activities, an accountant requires technical and legal abilities in addition to his or her normal skills. This article will explore the investigative aspect of this discipline, focusing on efforts to combat money laundering.

In any instance, a forensic investigation of financial records is a complicated matter. In the case of purported terrorist transactions, however, it can quickly become a sprawling, multinational effort. It can span many countries, both informal and internationally regulated financial institutions, and revenue from contributors, commercial activities, and criminal sources.

Each investigation begins with data collection. While most financial transactions now are electronic, as many as 30% may be recorded on paper, and an unknown number may leave no record at all. Recovering this evidence offers as many challenges as there are forms of communication. Paper records are scanned or re-typed to convert them to a usable electronic format. Computer files that are available offer a virtual Tower of Babel of disparate computer systems (mainframes to cell phones) and applications (databases, spreadsheets, word-processors, and custom applications).

Public records and compliance reports offer additional data sources. Corporate and personal records, usually under a formal legal process, can also provide valuable information.

Computer forensics are often necessary in order to recover information that has been deleted from computers and electronic devices like cell phones and personal digital assistants.

Evidence from computer servers that coordinate communications among multiple computers, and also the interactions outside an organization, can hold hordes of data, but require highly sophisticated systems analysis to extract the information in an effective way. For example, it may be necessary to break open passwords or decrypt information.

On top of the lengthy gathering process, all this data must be preserved in a very specific manner, so that it can later be submitted as evidence in legal proceedings if necessary.

Perhaps one of the heftiest tasks for a forensic accountant is that of organization. After all, it's not enough to simply collect the material; it has to be usable. Categorization of this magnitude requires the use of indices and keywords, cross-database retrieval technology, multiple-language and jurisdiction support, and specialized storage and document management systems. These tools help to facilitate the consistent identification of items, the retrieval of records, and the overall security of the collection.

Once a substantial amount of information has been collected and deemed usable, the work of analysis can begin. The volume and complexity of this data can be overwhelming, but there are a number of tools that can help, including highly sophisticated data analysis and visualization systems.

Many financial analysis tools were originally developed to combat money laundering (the transformation of cash derived from illegal activities into apparently legal funds), particularly in narcotics trade and arms smuggling. These activities can be a significant source of revenue for terrorist organizations. Michel Camdessus, former Managing Director of the International Monetary Fund (IMF), estimated that money laundering involved between 2 and 5 percent of the world's gross domestic product, a minimum of $600 billion.

Laundering money involves three stages: placement, layering, and integration.

Placement entails the initial entry of money into the formal financial system. This isn't that easy. Cash can be noticeable, awkward, and heavy -- $200,000 in $10 bills weighs 40 pounds. It's also easily stolen, lost, or destroyed. The most common way to place large quantities of cash is to smuggle it out of one jurisdiction into another country, preferably one with a favorable banking climate. Similarly, the use of hawala -- informal financial exchanges common in South Asia -- has sometimes been abused by money launderers.

Other tactics involve complicity with bank employees, exchange of goods for below-market value with the difference paid under the table (a "reverse flip"), false loans ("loan-backs"), wire transfers, foreign-exchange bureaus, and money orders. Sometimes people are employed as "smurfs" to move amounts in their own bank accounts that are below reporting thresholds. New electronic peer-to-peer payments offer potential opportunities to exploit yet another unregulated money-exchange channel.

Layering, the use of multiple transactions to further tangle the origins of the funds, begins once the money has entered the financial system. This stage of the laundry cycle is the most complex. It usually relies on international connections, moving money from one country to another, manipulating loopholes, differences in legislation, and any other advantage to successfully hide the origin of the funds.

Integration is the final stage of the process, when an apparently legal origin for the funds makes it possible to use the money freely within normal banking systems.

The international community began united efforts to combat money laundering in the late 1980s. These initiatives, coordinated by the Financial Action Task Force (FATF), currently include such members as the European Commission and the Gulf Cooperation Council, as well as 29 other countries (Argentina, Australia, Austria, Belgium, Brazil, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Iceland, Ireland, Italy, Japan, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, Turkey, United Kingdom, United States). Unfortunately, these participants do not include countries considered most friendly to money laundering (listed as "Non-Cooperative Countries and Territories (NCCTs)" or to terrorism.

The FATF has developed the Forty Recommendations, an international anti-money-laundering standard that sets out principles to be used as the basis for implementation of legislation within individual countries. Their basic recommendations include:

1. Criminalizing the laundering of the proceeds of serious crimes (Recommendation 4) and enacting measures to seize and confiscate the proceeds of crime (Recommendation 7).

2. Requiring financial institutions to identify all clients, including any beneficial owners of property, and to keep appropriate records (Recommendations 10 to 12).

3. Requiring financial institutions to report suspicious transactions to the competent national authorities (Recommendation 15) and to implement a comprehensive range of internal control measures (Recommendation 19).

4. Ensuring adequate systems for the control and supervision of financial institutions (Recommendations 26 to 29).

5. Establishing international treaties or agreements and to pass national legislation that will allow countries to provide prompt and effective international cooperation at all levels (Recommendations 32 to 40).

Recognizing that terrorist funds are often raised through otherwise legitimate businesses and charities, and in light of evolving technology, particularly the widespread use of electronic commerce, Internet banking, and peer-to-peer transactions, FATF has continued to review these recommendations.

Most recently, it has responded to terrorist attacks in America by suggesting that stronger government powers freeze terrorist assets, create a blacklist of countries that handle terrorist funds, and expand reporting capabilities of suspect transactions. Of course, to identify these assets, funds and transactions, we are back to the science of forensic accounting.

FYI:

Forensic accountants offer a number of useful services for financial services and other corporations. These include proactive risk analysis and management, identification and testing of potential risk areas, mitigation of these risks, response planning, and related activities. Consider this an essential component of your overall emergency/disaster response plan.

Note:

Bibliographic citations for this article can be found in the Finance section of the TerrorismCentral Library.

News Highlights of the Week

Africa

The Democratic Republic of Congo is under pressure from France and Great Britain to revive the stalled peace process by starting disarmament of the ethnic Hutu militia. Rwanda has refused to engage in peace talks until the militia, responsible for the 1994 genocide in Rwanda, is disarmed.

The Sudanese government and rebels from the Sudan People's Liberation Army have signed a cease-fire.

Zimbabwe's escalating political violence continues to claim victims, most recently in clashes where the police and government-backed youth militias attacked an opposition rally. With continued concern over human rights violations, it is likely the European Union will impose sanctions in the near future.

The Americas

In Brazil, the leading leftist opposition Workers' Party (PT) has faced escalating violence in the run-up to elections this fall. The PT's likely presidential candidate, Luiz Inacio Lula da Dilva was found murdered after being kidnapped last week and shortly after Celso Daniel, campaign manager of the PT, was assassinated. The spate of violence including murder, kidnapping, death threats and bombings has led to beliefs that this is an organized campaign to which the government must respond. Brazil has been relatively free of politically motivated violence, and other motives, including narcotics connections, are also being considered by authorities.

Peace talks in Colombia have begun. President Pastrana has requested participation by the US to bolster the peace process and to aid in security, particularly around oil supplies that have been a popular militant target.

Asia

Afghanistan has received pledges of more than $ 3 billion in international aid, following a conference attended by 60 countries and most large aid agencies. Serious concerns over how this aid money can be managed have remained high amid increased violence in the fragile country. Disputes simmering among traditional warlords, anger at continued American bombing and civilian casualties, widespread arms smuggling, crime and banditry, all fuel these worries.

China has issued a report linking Muslim separatists in the western province of Xinjiang ("East Turkistan") to bin Laden and al Qaeda. The report details over 200 assassinations, bombings and other separatist attacks over the past 10 years, which they claim account for 162 deaths. China has arrested more than 100 suspects. Afghan foreign minister Abdullah affirmed the report, leaving open the possibility of repatriating suspected terrorists to face justice in Afghanistan.

The US has imposed sanctions for 2 years against 2 Chinese companies accused of transferring chemical and biological weapons technology to Iran.

Calcutta, India, the US government cultural center was attacked by gunmen who killed 5 police and wounded 20, further fueling tensions with Pakistan. Indian authorities reported that Harkat ul Jehad e Islami had claimed responsibility. They have arrested six suspects.

India's home minister, Lal Advani, and others say this demonstrates that Pakistan has still not acted on its promises to crack down on Islamic militants.

Pakistan denies connections to the attack. Their crackdown on militants has led to protests by supporters of outlawed organizations.

Tension in the disputed Jammu-Kashmir region continues to be high

Meanwhile, underlining its determined position in the conflict, India has tested a new medium-range missile, capable of carrying a nuclear warhead.

Indonesian police are preparing to question a leading Islamic cleric, Abu Bakar Bashir, leader of Jemaah Islamiah (JI). JI is a regional terrorist organization that wants to create a separate Islamic state including Indonesia, Malaysia, and the southern Philippines. Links with other terrorist groups, including JI members arrested in Singapore, will be investigated.

Malaysia and Singapore continue to cooperate in the investigation of JI and regional links to Islamic militants.

The Philippines is hosting increasing numbers of US troops in joint exercises against the Abu Sayyaf Islamic militant group of bandits. The increased US presence has led to criticism and fear of their future role in the country.

Sri Lanka has begun steps towards peace talks, encouraged by a truce declared by the Liberation Tigers of Tamil Eelam (LTTE).

Europe

Bosnia Herzegovina turned over six terrorist suspects to the US. The suspects had been arrested and held in Bosnia and were given to US authorities under protest because no evidence against them was ever offered.

Germany has turned to computerized profiling to try to make progress in the search for suspected terrorists. Hamburg and other states are believed to have significant connections with al Qaeda and other militant groups, but progress in the investigations has not been forthcoming.

Chancellor Schroeder's efforts to ban the violent neo-Nazi Nationaldemokratische Partei Deutschlands (NPD) ran into difficulty over evidential errors, drawing widespread criticism.

Turkey has submitted a proposal for human rights reforms it hopes will meet European Union criteria to allow its proposed membership in the EU to move forward.

The United Kingdom faces continued protests in Northern Ireland over the conduct of the Omagh bombing inquiries, recent statements by the police chief failing to halt the mounting criticism. Gerry Adams, head of the SinnFein, (the Irish Republican Army's political wing) declared again that elected members would never take their place in a UK parliament.

Protests in the UK over treatment of prisoners, including British nationals, detained at the US naval base in Guantanamo Bay, Cuba, is widespread and vocal, the parliament and the public seemingly at odds with Prime Minister Tony Benn's continued support of the US position.

Middle East

Violence continues in Israel, the West Bank and Gaza Strip. Palestinian leader Yasser Arafat remains confined behind a cordon of Israeli tanks, armored personnel carriers, and snipers. This action inspired widespread protests, further provoked by Israeli Prime Minister Sharon's proposal to open the Temple Mount to non-Muslims. Israeli soldiers continued incursions in Palestinian self-rule areas, killing 4 Hamas members in a building raid, and several others in separate incidents. The European Union has calculated damage from recent Israeli bulldozing and bombing that destroyed EU-funded projects including schools and irrigation systems in excess of $17 million.

A Palestinian gunman retaliated by opening fire in central Jerusalem's main shopping street, wounding more than 20. Responsibility was claimed on behalf of the al-Aqsa Martyrs' Brigades, the armed faction of Arafat's al Fatah organization.

Efforts to mediate a truce have again been put on hold.

Iran has come under scrutiny for allegations of a dramatic escalation in trade, particularly arms smuggling, with Afghanistan.

In Lebanon, Elie Hobeika, the former Phalangist militia leader and government minister, was blown to bits by a massive bomb in a car stationed next to the armor-plated vehicle in which he was driven, along with four bodyguards. The attack occurred two days after Hobeika had agreed to testify in a war claims indictment against Israeli Prime Minister Ariel Sharon for his role in the slaughter of 1,700 Palestinians in refugee camps in 1982, an incident in which Hobeika also participated. Israel has denied responsibility for the attack. Responsibility was claimed by a previously unknown group, Lebanese for a Free and Independent Lebanon.

Libya has been pushing for closer connections with the United States. Colonel Muammer Gadaffi has held positive discussions with the US regarding Libyan aid in the "war on terrorism" but is still included on the US State Department list of countries that sponsor terrorism.

Reports suggesting that the US would remove troops Saudi Arabia have been denied, but are considering adjustments that would redeploy some troops in other Gulf states.

Human Rights

US authorities continue to dismiss a storm of international pressure to treat prisoners held in the US naval base in Guantanamo Bay, Cuba, as Prisoners of War, and to declare what the US plans to do with the prisoners.

Photos showing the prisoners bound, shaved, wearing blacked out goggles and earmuffs, aroused international protests. The Red Cross, whose inspection teams are interviewing the detainees, suggested that release of photographs contravened the third Geneva Convention.

Prominently covered in British newspapers, Foreign Secretary Jack Straw fielded vigorous domestic protests that did not lessen in the face of assurances from Prime Minister Tony Blair. Concern was raised in particular over the detention of British nationals and the possibility of their being subject to the death penalty. Mr. Blair has requested that British al Qaeda suspects be tried in the UK.

In the US, a coalition of civil rights campaigners has begun domestic legal challenges to the detentions.

Amnesty International has requested access to three facilities where the US Immigration and Naturalization Service is housing hundreds of detainees.

Law and Legal Issues

Colm Murphy was convicted in the Special Criminal Court in Dublin, Ireland, for his role in assisting in the Real IRA bomb at Omagh that killed 29 people in 1998. He is the first to be convicted in the case.

John Walker Lindh, the "American Taliban" was returned to the US where he was taken into custody to face federal charges, including conspiracy to kill Americans. He appeared at court in a bil hearing, at which bail was denied.

Lawyers for Abdel Basset Ali Mohammed al Megrahi has appealed his conviction in the Lockerbie bombing, offering new evidence to support the appeal.

American Lori Berenson, sentenced to 20 years in jail in Peru on terrorism charges for support of the Tupac Amaru Revolutionary Movement, is appealing her sentence to Peru's Supreme Court.

An April trial date has been set for Bobby Frank Cherry, a former Ku Klux Klan member accused of the 1963 church bombing that killed 4 black girls.

Weapons of Mass Destruction

Reports surfaced of a US Army inquiry in the early 1990s that revealed specimens of anthrax, ebola, and other pathogens were missing from the US Army Medical Research Institute of Infectious Diseases (USAMRIID). Risk from the missing specimens in unclear.

Meanwhile, the search for the source of the anthrax used in mail attacks in the US received a boost with progress in finding its genetic footprint, aided by a distributed computing project to search the gene banks.

Russia has requested discussions on limits on the US missile defense program.

The US Department of Energy is destroying 34 metric tons of plutonium by converting it into fuel for nuclear reactors.

Newly Published:

The International Crisis Group, God, Oil and Country: Changing the Logic of War in Sudan. International Crisis Group Press, Brussels.

David Michie, Pure Deception. Warner Books.

Coming soon

Next week you'll see background on the continued conflict over Jammu-Kashmir and news on the TerrorismCentral subscription service.

Please contact us with your questions or comments by sending email to . We look forward to hearing from you.

Editorial Team
TerrorismCentral

PUBLICATION DATE:
January 5, 2002

DATE:
20020127