Terrorist finance Perspectives on informal systems the UK Context. Dr Karen Clubb 2014 www.derby.ac.uk/lhss

IVTS – traditional model of operation Jurisdiction A Jurisdiction B transaction information/code Payment Collection settlement / consolidation Payment pathway transaction information pathway Client A Client B Hawaladar A Hawaladar B www.derby.ac.uk/lhss

The Demonisation of Hawala the backdrop to UK regulation Post 9/11 – increased scrutiny FATF SR VI (Recommendation14) Financial intelligence Risk reduction - FATF technical note UK July 2011 www.derby.ac.uk/lhss Dr K Clubb October 2014

Money Laundering Regulations 2007 No differentiation by risk No exemptions Registration – fit and proper test Reg 28,30 Risk based approach - Part 2 Jurisdictional assessment – FATF R1, UK 2014, 4th EU Directive Management of ML/TF profile SARs reporting Overseas agents www.derby.ac.uk/lhss Dr K Clubb October 2014

Impact of regulation of MSBs Increased transparency ‘Upskilling’ of operators Increased formality Change in operational structures Disproportionate increased workload/ cost Trade based laundering unaffected RBA - reliant supervisory guidance Risk averse attitude of banks Little consideration of ‘cultural fit’ & financial inclusion Concern re prosecution www.derby.ac.uk/lhss Dr K Clubb October 2014

Assessing effectiveness Prosecutions (Sproat 2010) Volumes of assets frozen /seized Number of SAR’s filed (NCA SARS Annual Report) HMT Sanctions- compliance HMRC - compliance/ enforcement - HMT 2012/13 report Financial intelligence – TFU usefulness? Independent review – cost/benefit Effect on remittance users & activity www.derby.ac.uk/lhss Dr K Clubb October 2014

Effectiveness of regulation Merger of AML/ CTF questionable - Terrorist finance - lower threshold for risk tolerance Specific funding offences (Alexander 2009) Seizure and forfeiture - little data General deterrence from increased vigilance Due diligence and suspicion Non-compliance – supervisions and sanctions Quality/ incidence of SARs reports Lowering of transaction thresholds Variable responses to risk Methodology – FATF 2013 (Ryder 2013) Promoting financial inclusion- Dahabshill MSB www.derby.ac.uk/lhss Dr K Clubb October 2014

Lessons learnt conclusions Wider considerations impact/ effectiveness Jurisdictional risk assessments Regulatory proportionality Quality of supervision Community support & outreach Support of humanitarian/ charitable objectives Pakistan Remittance initiative (2009) Policy – multiagency working group ‘safe corridors’ 2013 www.derby.ac.uk/lhss Dr K Clubb October 2014

References 1 David Anderson QC Third Report on the operation of the Terrorist Asset Freezing etc Act 2010 ( december 2013) para 2.37 2 World Bank Migration and Remittances: Recent Developments and Outlook 1 No 22 April 1 2014 3 JMLSG Guidance in respect of Money Service Businesses 28 May 2014 4 Census statistics (2011) Office of National Statistics Diagram slide 2 El Qorchi M, How does this informal funds transfer system work, and should it be regulated? Available at http://www.gdrc.org/icm/hawala.html Date Accessed 27/09/2014 5 IMF ‘United Kingdom: Anti-Money Laundering/Combating the Financing of Terrorism Technical Note’ IMF Country Report No. 11/231 July 2011 PhD Thesis ‘A critical examination of the anti-money laundering legislative framework for the prevention of terrorist finance with particular reference to the regulation of alternative remittance systems in the UK’ Karen Cooper, Leeds University 2014. www.derby.ac.uk/lhss Dr K Clubb October 2014

Bibliography Alexander R ;Money Laundering and Terrorist Financing how to fight terrorism without defeating the law; FATF ;International Standards on Combatting Money Laundering and the Financing of Terrorism and Proliferation – The FAT Recommendations’ (2012) FATF ‘Methodology for Assessing Technical Compliance with FAT Recommendations and Effectiveness if the AML/CTF systems’ (February 20130 FATF ‘National Money Laundering and Terrorist Financing Risk Assessment’ ( February 2013) HM Treasury, ‘The Regulation of Money Service Business: A Consultation’ (September 2006) HMRC Guidance for Money Services Businesses’ (MLR8 July 2010) HM T’reasury Anti-Money Laundering and Counter Terrorist Finance Supervision Report’ (2012/13) NCA, ‘Suspicious Activity Reports (SARs) Annual Report (2013) Ryder N ‘To Confiscate or not to confiscate ? A Comparative Analysis of the confiscation of the proceeds of crime legislation in the United States and the United Kingdom’ 8 J Buis L 789 World Bank fact Book (2011 ‘Terms of Reference for the Action Group on Cross Border Remittances’ available at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/295344/TOR-_OVERVIEW.pdf Dahabshiil Transfer Services Limited v Barclays Bank plc Harada Limited, Berkeley Credit and Guarantee Limited v Barclays Bank plc [2013] EWHC 3379 R v Patel [2012] EWCA Crim 2479 www.derby.ac.uk/lhss Dr K Clubb October 2014