Trans-national Crime CFT - Introduction, Issues and Best Practices Non Traditional Security Course – RSIS, NTU / 22 Aug 2007 Prepared by: Gunawan Husin

Risk & Capital Management Gunawan Husin · 22 August 2007 · page 2 Agenda CFT – Key Concepts CFT Counter Measures Implementation Issues Roles of Financial Sector Policy Recommendations Best Practices Case Studies

Risk & Capital Management Gunawan Husin · 22 August 2007 · page 3 Protection Group Political Uncertainty Terrorism: A continuing threat Natural Hazards Infrastructure Failure

Risk & Capital Management Gunawan Husin · 22 August 2007 · page 4 Top 5 risks in the region

Risk & Capital Management Gunawan Husin · 22 August 2007 · page 5 Definition Process of filtering proceeds (placement) of criminal activities through one or more financial transactions (layering) in order to give them legitimacy (integration) Process of raising, storing and moving the funds, obtained through illegal and / or legal means for the purpose of terrorism acts and /or sustaining lifeblood of the terrorist organisation

Risk & Capital Management Gunawan Husin · 22 August 2007 · page 6 Source: The IMF/ World Bank, Reference Guide to Anti Money Laundering and Combating the Financing of Terrorism, 2006

Risk & Capital Management Gunawan Husin · 22 August 2007 · page 7 Terrorism and Crime Suspects + Money = Act Suspects + Act = Money

Risk & Capital Management Gunawan Husin · 22 August 2007 · page 8 CFT KEY CONCEPTS

Risk & Capital Management Gunawan Husin · 22 August 2007 · page 9 Operational cost of attacks Source: UN Monitoring Group Report 2004 and NTFIU

Risk & Capital Management Gunawan Husin · 22 August 2007 · page 10

Risk & Capital Management Gunawan Husin · 22 August 2007 · page 11 Terrorist Financia l Needs Terrorist Financia l Needs Propaganda Safe House Training Bribery Recruitment Supplies Communication Travelling

Risk & Capital Management Gunawan Husin · 22 August 2007 · page 12 Funds Flow Organisational Cost Attack Operational Cost Targeting Terrorist Financial Network

Risk & Capital Management Gunawan Husin · 22 August 2007 · page 13 Terrorist Financing Sources of Funds State sponsors Private Donors Charities Legitimate business enterprises Criminal Activities

Risk & Capital Management Gunawan Husin · 22 August 2007 · page 14 Proceeds of crime Drugs transactions Bank fraud IPR Smuggling Internal fraud - misuse of funds Illegal logging Acts of terrorism Kidnapping / Extortions

Risk & Capital Management Gunawan Husin · 22 August 2007 · page 15 Why Charities ? They enjoy public trust Ease of creation Access to substantial funds Could be cash intensive Legitimate reasons to operate in areas of conflict and/or poverty Different levels of charity regulation around the world

Risk & Capital Management Gunawan Husin · 22 August 2007 · page 16 Typologies - Charities Purpose: To deal with large values and volumes of transactions hence avoid attracting attention of local officials Collusion with banking officer and local corrupt government officials Fraudulent solicitation of donors Aid worker’s misuse of position, where terrorist group infiltrates a charity organisation by placing its member as a key financier in the charity. Branch office defrauds headquarter, in order to obtain additional funds from the headquarters by inflating the number of fictitious beneficiaries

Risk & Capital Management Gunawan Husin · 22 August 2007 · page 17 COUNTER MEASURES

Risk & Capital Management Gunawan Husin · 22 August 2007 · page 18 CFT Counter Measures – The Resolutions UNSCR ResolutionPurpose 1267, 15 October 1999Establishes Security Council Committee (1267 Committee); imposes limited air embargo and funds and financial assets embargo on the Taliban 1333, 19 December 2000Air and arms embargo, restricted travel sanctions, freezing of funds of Osama Bin Laden and associates 1363, 30 July 2001Establishment of a mechanism to monitor implementation of measures imposed by Resolutions 1267 (1999) and 1333 (2000) 1373, 28 September 2001Measures on countering threats to international peace and security caused by terrorist acts, and mandating formation of Counter-Terrorism Committee 1377, 12 November 2001Call upon member states to implement fully Resolution , 16 January 2002Effective merging of freezing measures of Resolutions 1267 and , 20 December 2002Exclusions to the freezing requirement of Resolution 1267 and 1333, to cover expenses for basic expenses and charges for routine maintenance of assets, and for extraordinary expenses after approval of the “1267 Committee” 1455, 17 January 2003Measures to improve implementation of freezing measures of Resolutions 1267, 1333 and , 20 January 2003Measures to particular comply fully with all relevant resolutions of the Security Council, in particular resolutions 1373 (2001), 1390 (2002) and 1455 (2003).

Risk & Capital Management Gunawan Husin · 22 August 2007 · page 19 Financial Action Task Force 9 Special Recommendations on Terrorist Financing SR 1: Implementation of International legal instruments SR 2:Criminalisation of the financing of terrorism, terrorist acts and terrorist entities SR 3: Freezing and Confiscation of terrorist assets SR 4: Reporting transactions related to terrorism SR 5: International Cooperation SR 6: Alternative Remittance Services SR 7: Wire Transfers SR 8: Non-profit Organisations SR 9: Cash Couriers

Risk & Capital Management Gunawan Husin · 22 August 2007 · page 20 Implementation Issues Multi dimensional challenge Awareness level Level of ‘’intelligence’’ sharing – Feedback ? Uneven level of playing field Resources implication Cross Border Cooperation How about other high risk industries?

Risk & Capital Management Gunawan Husin · 22 August 2007 · page 21 Key Success Factors Political Willingness –Ratification of UN Conventions –Implement FATF recommendations –Cooperate with other jurisdictions via Bi/Multi Lateral agreements –Mutual Assistance Public Private Partnership –Capacity Building –CFT Policy –Project group –Awareness seminars –Financial sector to assist in investigation

Risk & Capital Management Gunawan Husin · 22 August 2007 · page 22 Countering Terrorist Financing Requires financial intelligence Importance of financial investigations Financial footprints – surveillance Profiling techniques Account activity analysis – out of profile indicator Partnership is key – participation of financial sector How to develop suspicions Also include non transactions ?

Risk & Capital Management Gunawan Husin · 22 August 2007 · page 23 Recommendation – Best Practices Integration of Financial Investigation into National CT Strategies Create / Strengthen and Lead Public Private Partnership Scheme Engage in Cross Border Cooperation “ Regulated Sector” Establish and Strengthen FIU capability Top Management Support Enhanced KYC and CDD Process Risk Based Profiling Engage actively in PPP

Risk & Capital Management Gunawan Husin · 22 August 2007 · page 24 Counter Measures – Int’l Best Practices Tactical Measures Legislation and Strategy Multilateral cooperation Freeze, Seize and Confiscate Sanctions

Risk & Capital Management Gunawan Husin · 22 August 2007 · page 25 Counter Measures – Int’l Best Practices (2) Strategic Measures – Public Sector Integration of Fin Investigation into national CT strategy Develop, lead and strengthen PPP Establish and strengthen FIU Regulate other sectors at risk Cross Border Cooperation

Risk & Capital Management Gunawan Husin · 22 August 2007 · page 26 Counter Measures – Int’l Best Practices (3) Strategic Measures – Private Sector Develop compliance measures in place Engage and Participate in the PPP scheme

Risk & Capital Management Gunawan Husin · 22 August 2007 · page 27 Key Financial suspicious indicators Structuring of transactions amount Funds sent to or received from locations of concern Mismatch between personal /company profile with course of action Deposits followed by immediate withdrawals

Risk & Capital Management Gunawan Husin · 22 August 2007 · page 28 ROLE OF FINANCIAL SECTOR (First and Last line of defense)

Risk & Capital Management Gunawan Husin · 22 August 2007 · page 29 Why Banks? Global network Access to other markets Competitiveness nature Culture of confidentiality and secrecy Various intensity of financial regulations between jurisdictions Product and Services range Innovative - Customer friendliness Profit motive vs Risk Management

Risk & Capital Management Gunawan Husin · 22 August 2007 · page 30 What Bank could do ? Simplistic Responses Don’t offer innovative products Place small limits on high risk transactions More frequent password changes Strategic Responses Detection capability Behavioural analysis Profiling Capacity building and partnerships

Risk & Capital Management Gunawan Husin · 22 August 2007 · page 31 What Banks should do Partnership within and with public sector Build capacity, research and training Information sharing - case studies, typologies and analytical skills Improve STR/SAR capability Improve STR/SAR quality Demonstrate active role in war against terror and financial crime

Risk & Capital Management Gunawan Husin · 22 August 2007 · page 32 Implication on Banking Sector Need for sound AML / CFT program Increased risk-based AML/CFT culture Better understanding on regulatory requirements Active cooperation within FI and CFT community Improve quality of suspicious transactions / activity reports Understanding of reputation and operations impact

Risk & Capital Management Gunawan Husin · 22 August 2007 · page 33 CFT Compliance Program Top management Commitment Customer identification process Risk – Based due diligence Data Retention Suspicious reporting Risk Based profiling

Risk & Capital Management Gunawan Husin · 22 August 2007 · page 34 Various level of readiness Don’t care Try not to find Pretend to be compliant Be compliant Letter of law/regulation Spirit of law/regulation Productive use of resource Do what is appropriate, incidentally meeting obligations Different people sit at different stages

Risk & Capital Management Gunawan Husin · 22 August 2007 · page 35 IMPORTANCE OF FINANCIAL INVESTIGATIONS

Risk & Capital Management Gunawan Husin · 22 August 2007 · page 36 UK NTFIU Strategy Narrow approach vs Wide Approach G8 All Counter – Terrorism investigations must include financial investigations Public – Private Partnership

Risk & Capital Management Gunawan Husin · 22 August 2007 · page 37 Benefits of Financial Investigations Full profiles provide: Behaviours Locations Associates Telephone Monitoring – precursor activity

Risk & Capital Management Gunawan Husin · 22 August 2007 · page 38 Why Financial investigations? Financial Investigations provides: –Good Evidence –Good intelligence –Opportunities for disruption it can be used to trace and follow terrorists and those who support them. it can be linked to the investigation of criminal activity. it allows financial regulators to focus asset freezing and sanctions accurately and appropriately. it can be used to protect sensitive sources

Risk & Capital Management Gunawan Husin · 22 August 2007 · page 39

Risk & Capital Management Gunawan Husin · 22 August 2007 · page 40 Next Challenges The need to understand adverse effect of financial crime Various jurisdictions with uneven level of progress The need to understand CFT roles and responsibility The need for building capacity in CFT The need for greater cooperation and collaboration Need to transform financial information into financial intelligence

Risk & Capital Management Gunawan Husin · 22 August 2007 · page 41 Public Private Partnerships Fulfilling legal and regulatory obligations Closer working relationships within key sectors, to promote highest standards of CFT controls Fulfilling legal and regulatory obligations To share internal classified intelligence, on high risk customers and locations of concern Capacity Building Develop Standards and Best Practices Continue public campaign on CFT awareness

Risk & Capital Management Gunawan Husin · 22 August 2007 · page 42 CFT Policy Brief

Risk & Capital Management Gunawan Husin · 22 August 2007 · page 43 Future Direction 24/7 incident support Account monitoring Transaction monitoring Intelligence Exchange Academic Collaborations

Risk & Capital Management Gunawan Husin · 22 August 2007 · page 44 Concluding Remarks There is no terrorism without money CFT deserves an area of specialisation CFT is more than a political problem, it requires holistic approach Law Enforcement Agencies have the Knowledge, Financial Sector has the tool “P” is the key Together we will create a hostile environment for terrorism