As we have seen in our earlier studies that money laundering is a serious crime and effects the individuals, state and society. That is why, today, there is a global effort to educate and train individual states to prepare them to fight against money laundering.
Terrorist financing is a growing menace. Hence, it is necessary that we know about the important aspects of this organised crime. Related to this is another important phenomenon, that is, the role of remittance systems including cash couriers, charities and non-profit organisations in terrorist financing. This paper accordingly examines how the alternate remittance system operates and helps the organised criminals.
Cash couriers The physical movement of cash is one way terrorists can move funds without encountering the AML/CFT safeguards established in financial institutions. Some groups have converted cash into high-value and hard-to-trace commodities such as gold or precious stones in order to move assets outside of the financial system.
Cash couriers have transferred funds to a number of countries within the Middle East and South Asia. Direct flight routings are used for simple transfers; however, indirect flight routings using multiple cash couriers and changes in currencies take place within more sophisticated schemes.
Large parts of Africa and the Middle East have predominantly cash-based societies, and this naturally lends itself to cash flows using alternative remittance systems or by courier. An analysis of a number of terrorism cases has shown that money couriers are active even within Europe and between countries with a well-functioning financial system. In most cases couriers are involved in moving funds generated outside the financial system and kept out of the financial system to avoid detection.
Terrorists use gold to move value During the invasion of Afghanistan in 2001, members of a fundamentalist group smuggled their money out of the country via Pakistan using couriers that handled gold bars. In Karachi, couriers and hawala dealers transferred the money to the Gulf Region, where once again it was converted to gold bullion. It has been estimated that in late November to early December 2001, fundamentalist groups transferred USD 10 million in cash and gold out of Afghanistan. 1 A manual found by British forces in Afghanistan in December 2001 included not only chapters on how to build explosives and clean weapons, but on how to smuggle gold on small boats or conceal it on the body. 2
Gold is often used by hawala brokers to balance their books. 3 Hawala dealers also routinely have gold, rather than currency, placed around the globe. Terrorists may store their assets in gold because its value is easy to determine and remains relatively consistent over time. There is always a market for gold given its cultural significance in many areas of the world, such as Southeast Asia, South and Central Asia, the Arabian Peninsula, and North Africa.
Charities Charities are attractive to terrorist networks as a means to move funds. Many thousands of legitimate charitable organisations exist all over the world that serve the interests of all societies, and often transmit funds to and from highly distressed parts of the globe. Terrorist abuses of the charitable sector have included using legitimate transactions to disguise terrorist cash travelling to the same destination; and broad exploitation of the charitable sector by charities affiliated with terrorist organisations. The sheer volume of funds and other assets held by the charitable sector means that the diversion of even a very small percentage of these funds to support terrorism constitutes a grave problem
Non-profit organisation A bank checked its customer database to match lists relating to terrorism, and found that a non-profit organisation, which held an account with it, with its registered office in European Country B, was named on a terrorism list. The Bank submitted a STR based on this match.
The organisation's account had been opened a few years before and had seen low activity, then suddenly experienced a particular intense bout of activity starting on 1 January 2002. The transactions on this account consisted of multiple cash deposits made by several different people for a large total amount. These funds were then withdrawn in cash. One can draw lessons from these examples to combat such serious offences to safeguard society, state and individuals.
1. For sources relating to al Qaeda's abuse of the gold sector see the following sources: US Government Accountability Office (2003), Farah (2002), British Broadcasting Corporation(2002) and Shahzad (2002). In addition, for a detailed study of al Qaeda's use of diamonds and gold, see Global Witness (2003). More generally, in FATF (2003), there is a section that details the use of gold and diamonds in money laundering.
2. US Government Accountability Office (2003) and Global Witness (2003).
3. Commonwealth Secretariat (1998).
(The writer is an advocate and is currently working as an associate with Azim-ud-Din Law Associates)