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Terrorism financing came into limelight after the events of terrorism on 9/11. The US passed the USA PATRIOT Act to, among other reasons, attempt thwarting the financing of terrorism (CFT) and anti-money laundering (AML) making sure these were given some sort of adequate focus by US financial institutions. The act also had extraterritorial impact and non-US banks having correspondent banking accounts or doing business with US banks had to upgrade their AML/CFT processes.

Initially the focus of CFT efforts was on non-profit organisations, unregistered money services businessess (MSBs) (including so called underground banking or ‘Hawalas’) and the criminalisation of the act itself. The Financial Action Task Force on Money Laundering (FATF) made nine special recommendations for CFT (first eight then a year later added a ninth). These nine recommendations have become the global standard for CFT and their effectiveness is assessed almost always in conjunction with AML.^[1]

The FATF Blacklist (the NCCT list) mechanism was used to coerce countries to bring about change.

Money laundering[link]

Often linked in legislation and regulation, terrorism financing and money laundering are conceptual opposites. Money laundering is the process where cash raised from criminal activities is made to look legitimate for re-integration into the financial system, whereas terrorism financing cares little about the source of the funds, but it is what the funds are to be used for that defines its scope.

An in-depth study of the symbiotic relationship between organized crime and terrorist organizations detected within the United States of America and other areas of the world referre d to as crime-terror nexus points has been published in the forensic literature.^{[2][3][4][5][6][7]} The Perri, Lichtenwald and MacKenzie article emphasizes the importance of multi-agency working groups and the tools that can be used to identify, infiltrate, and dismantle organizations operating along the crime-terror nexus points.

Terrorists use low value but high volume fraud activity to fund their operations.^{[citation needed]} Paramilitary groups in Northern Ireland are using^{[citation needed]} legitimate businesses such as hotels, pubs and taxi operators to launder money and fund political activities. Even beyond Ireland, terrorists are buying out/controlling front-end businesses especially cash-intensive businesses including in some cases money services businesses to move monies.^{[citation needed]} Bulk cash smuggling and placement through cash-intensive businesses is one typology. They are now also moving monies through the new online payment systems. They also use trade linked schemes to launder monies. Nonetheless, the older systems have not given way. Terrorists also continue to move monies through MSBs/Hawalas, and through international ATM transactions^{[citation needed]}. Charities also continue to be used in countries where controls are not so stringent.

Suspicious activity[link]

Operation Green Quest was the US multi-agency task force set up in October 2001 to combat terrorism financing and had developed a checklist of suspicious activities. The following patterns of activity indicate collection and movement of funds that could be associated with terrorism financing:

1. Account transactions that are inconsistent with past deposits or withdrawals such as cash, cheques, wire transfers, etc.
2. Transactions involving a high volume of incoming or outgoing wire transfers, with no logical or apparent purpose that come from, go to, or transit through locations of concern, that is sanctioned countries, non-cooperative nations and sympathizer nations.
3. Unexplainable clearing or negotiation of third party cheques and their deposits in foreign bank accounts.
4. Structuring at multiple branches or the same branch with multiple activities.
5. Corporate layering, transfers between bank accounts of related entities or charities for no apparent reasons.
6. Wire transfers by charitable organisations to companies located in countries known to be bank or tax havens.
7. Lack of apparent fund raising activity, for example a lack of small cheques or typical donations associated with charitable bank deposits.
8. Using multiple accounts to collect funds that are then transferred to the same foreign beneficiaries
9. Transactions with no logical economic purpose, that is, no link between the activity of the organization and other parties involved in the transaction.
10. Overlapping corporate officers, bank signatories, or other identifiable similarities associated with addresses, references and financial activities.
11. Cash debiting schemes in which deposits in the US correlate directly with ATM withdrawals in countries of concern. Reverse transactions of this nature are also suspicious.
12. Issuing cheques, money orders or other financial instruments, often numbered sequentially, to the same person or business, or to a person or business whose name is spelled similarly.

It would be difficult to determine by the activity alone whether the particular act was related to terrorism or to organized crime. For this reason, these activities must be examined in context with other factors in order to determine a terrorism financing connection. Simple transactions can be found to be suspect and money laundering derived from terrorism will typically involve instances in which simple operations had been performed (retail foreign exchange operations, international transfer of funds) revealing links with other countries including FATF blacklisted countries. Some of the customers may have police records, particularly for trafficking in narcotics and weapons and may be linked with foreign terrorist groups. The funds may have moved through a state sponsor of terrorism or a country where there is a terrorism problem. A link with a Politically Exposed Person (PEP) may ultimately link up to a terrorism financing transaction. A charity may be a link in the transaction. Accounts (especially student) that only receive periodic deposits withdrawn via ATM over two months and are dormant at other periods could indicate that they are becoming active to prepare for an attack.

The Operation Green Quest raids led to the convictions of two people, including Abdurahman Alamoudi, who worked for the SAAR Foundation. Alamoudi admitted that he plotted with Libya to assassinate the Saudi ruler and was sentenced to 23 years in jail.^[8][9][10]

Bank processes[link]

In addition to normal AML controls, banks must focus on the CFT angle with renewed vigor and knowledge derived from the extensive databank of case studies now available. Banks must focus on not just name matching with sanctions databases but also with other know your customer (KYC) high-risk databases of good third party vendors. They must use technologies like link analysis to establish second and third level links that identify transactions as potentially suspicious from a CFT perspective. Focus on preventing identity theft is an integral part of any CFT program. Detection rules designed to capture the suspicious activity list given above, should be evaluated. Controls out of the transaction monitoring process, for example, account openings by groups of individuals, are also important to watch for. Any bank that is used for terrorism financing will suffer tremendous reputational damage and also a real business impact in terms of share price and expensive fines. To safeguard against this, financial institutions purchase anti-money laundering software from companies such as Lexis Nexis and C6 along with databases of high risk individuals and organizations developed by companies such as WorldCompliance and C6.

Germany[link]

In July 2010, Germany has outlawed the Internationale Humanitäre Hilfsorganisation (IHH), saying it has used donations to support projects in Gaza that are related to Hamas, which is considered by the European Union to be a terrorist organization,^[11][12] while presenting their activities to donors as humanitarian help. German Interior Minister Thomas de Maiziere said, "Donations to so-called social welfare groups belonging to Hamas, such as the millions given by IHH, actually support the terror organization Hamas as a whole." ^[12][11]

See also[link]

• List of charities accused of ties to terrorism
• Alms for Jihad
• Financial crime
• Funding Evil
• Organized crime
• White-collar crime

References[link]

External links[link]

• US Department of State International Narcotics Control Strategy Report (INCSR), annual report issued in March every year. Essential reading for all compliance officers for evaluating country money laundering risk
• US FinCEN (the US FIU) - Periodic SAR Reviews
• UK SOCA (merges NCIS (the UK FIU) - the UK Threat Assessment
• Compliance Web Search - A Google-powered vertical search engine designed to facilitate and accelerate the account vetting process for financial institutions
• Financial Market Integrity Unit, The World Bank
• International Centre for Political Violence and Terrorism Research - Strategic Counter Terrorism - Financial Response
• The funding of international islamic terrorism ~ Strategic analysis profiles ~ Guardia di Finanza General Headquarters - 2nd Department – Analysis Unit
• The Terror Finance Blog - Blog on all aspects of terrorism financing written by a group of independent analysts
• The Financial Action Task Force website

KYC[link]

• World-Check.com - The largest KYC database vendor.
• IntegrascreenOnline - Another key KYC database vendor

Loretta Napoleoni
Economist, author, journalist and political analyst.
Website
http://lorettanapoleoni.net

This article includes a list of references, but its sources remain unclear because it has insufficient inline citations. Please help to improve this article by introducing more precise citations. (August 2011)

Loretta Napoleoni (born 1955) is an Italian economist, author, journalist and political analyst. She is an expert on the financing of terrorism and is well known internationally for having calculated the size of the terror economy.

Life and career[link]

Napoleoni was born and raised in Rome, Italy. An active member of the feminist movement in the mid 1970s, she was a Fulbright scholar at Johns Hopkins University's Paul H. Nitze School of Advanced International Studies (SAIS) in Washington, D.C., and a Rotary Scholar at the London School of Economics (LSE). She has a M.Phil. in Terrorism from LSE, a Master's in International Relations from SAIS, and a Ph.D. in Economics from the University of Rome^{[disambiguation needed ]}.

As an economist Napoleoni has worked for several banks and international organizations in Europe and the United States. In the early 1980s she worked at the National Bank of Hungary on the convertibility of the Hungarian forint that became the blue print for the convertibility of the ruble a decade later.

As well as lecturing regularly on the financing of terrorism, Napoleoni advises several governments on counter-terrorism. As chairman of the counter terrorism financing group for the Club de Madrid, she brought heads of state from around the world together to create a new strategy for combatting the financing of terror networks.

Napoleoni lives in London, England, and Whitefish, Montana, with her husband and children.

Appointments[link]

She is a member of the scientific committee of the Fundacion IDEAS, Spain's Socialist Party's think tank. Since 2007 she has been Director of the first Italian investigative journalism course.^{[clarification needed][where?]}, and lectured at Cambridge University's Judge Business School^[1]

Publications[link]

Napoleoni's writing appears regularly in many journals and publications, including several European newspapers. She has worked as a foreign correspondent and columnist for several Italian financial papers^{[clarification needed][where?]}. She was among the few people to interview the Red Brigades in Italy after three decades of silence.

Napoleoni has written novels, guide books in Italian and translated and edited books on terrorism. Her best-selling book Terror Incorporated was translated into 12 languages, Dossier Baghdad is a financial thriller set during the Persian Gulf War, and she has also published a nonfiction book about Iraq: Insurgent Iraq: Al-Zarqawi and the New Generation. Rogue Economics, was published in 2008 by Seven Stories Press in the US, and by Turnaround in the UK. Her most recent book in English 10 Years That Shook The World: A Timeline of Events from 2001 was published as an e-book by Seven Stories Press on 6 September 2011 to mark the tenth anniversary of the 9/11 attacks. It covers issues as diverse as financial policy, advances in science and technology, new economic policies, propaganda, environmental issues and the revolutionary powers of social media.

Her forthcoming book is called Maonomics: Why Chinese Communists Make Better Capitalists Than We Do. The Italian edition of Maonomics won the 2010 Premio dell'Associazione per il Progresso Economico award^[2]

Loretta also writes articles for newspapers and journals including El Pais, Le Monde, The Guardian,^[3] Il Venerdi di Repubblica, l'Espresso, l'Unità, Il Caffè and Wired Italia.

Quotations[link]

Bibliography[link]

• Terror Incorporated: Tracing the Dollars Behind the Terror Networks (2005) [2]
• Insurgent Iraq: Al-Zarqawi and the New Generation (2005) [3]
• Rogue Economics: Capitalism's New Reality (2008, 2nd ed. 2009) [4]
• Terrorism and the Economy: How the War on Terror is Bankrupting the World (2010) [5]
• 10 Years That Shook The World: A Timeline of Events from 2001 (2011) [6]
• Maonomics: Why Chinese Communists Make Better Capitalists Than We Do (October 2011) [7]

Notes[link]

References[link]

1. Penguin Books Author Search Results [8]. Retrieved on 2007-11-12
2. Goodman, Amy Italian Writer Loretta Napoleoni on the Amman Triple Bombing, How the U.S. Helped Create Zarqawi and the Terror Financing Network - Interview [9] DemocracyNow!.org. Retrieved on 2007-11-12
3. The Senlis Council The Third International Symposium on Global Drug Policy: Paris 2004 - Guest Speaker [10] SenlisCouncil.net. Retrieved on 2007=11=12
4. Forum Barcelona 2004 - Universal Forum of Cultures Speaker Search - Guest Speaker [11] . Retrieved on 2007-11-12
5. Buchanan, Michael London bombs cost just hundredsBBC online news article - Interview [12] BBC.co.uk. Retrieved 2007-11-12
6. Cowell, Alan OFF THE SHELF; Terrorism's Cost in a Global Economy - Review [13] NewYorkTimes.com. Retrieved on 2007-11-12
7. The Guardian, Special Report Security and Terrorism Rapid rise of the economy of terror- Article [14] Guardian.co.uk. Retrieved on 2007-11-12
8. Dateline, Loretta Napoleoni Interview[15] SBS.com.au. Retrieved on 2007-11-15
9. Four Corners, Loretta Napoleoni Interview[16] ABC.net.au. Retrieved on 2007-11-15

External links[link]

• Loretta Napoleoni website
• The Value of Human Rights,Constitutional Rights,and of the Rule of Law
• Democracy Now! Loretta Napoleoni interview (03/2008)
• Democracy Now! Loretta Napoleoni interview (11/2005)
• Audio: Loretta Napoleoni in conversation on the BBC World Service discussion show The Forum
• The intricate economics of terrorism TED (conference)