Soapbox: Uncertain returns on terrorists' money trail

October 12, 2001

Academics consider Afghanistan's crisis and responses to the war on terrorism: money laundering.

There is rough agreement that the total cost of setting up and carrying out the September 11 massacres was about $200,000. Cash proceeds of this size do not have to be hidden behind nominee accounts onshore or offshore: they can be moved physically or sent by money transmitters or by unofficial " hawala " systems that match transfers from, say, Pakistan to the US against funds sent by expatriates to Pakistan.

The new pressures aim to trace the origins of the funds used in this case and to reduce such funds in the future. False identities for credit and account opening will be revealed, and pressure may be put on nominees if the terrorists or their associates have been so unwise as to speculate on airline stocks or high-tech and money-laundering detection technology.

Accounts worldwide of all persons suspected of having assisted the named terrorist groups have also been frozen, using the economic threat of stopping the banks from clearing funds or operating transactions through the US. However, the widespread use of nominees makes finding even legitimate or commingled funds donated by supporters extremely difficult.

At a multilateral level, the addition of proceeds of terrorism to the core role of the Financial Action Task Force, which has administered world anti-laundering policy since 1989, will sharpen the blacklisting process that has scared many offshore finance centres into making reforms recently. On the other hand, militarily important countries, such as Russia and Egypt, may temporarily find it easier to get off the blacklist or to avoid economic sanctions.

Powers to freeze accounts will be extended despite protests that this infringes property rights, and those calling for lawyers to be immune from requirements to report suspicious transactions will be accused of tolerating terrorism. "Know your customer" rules - rejected not long ago by the US Congress - have been applied to new accounts, but banks may also look at old-established accounts for signs of terrorism connections. However, hawala will be very difficult to counteract.

Overall, it will become harder to move terrorist and other crime proceeds, and large sums are needed to finance a long-term terror network. But it is difficult to believe that $200,000 sent in modest tranches would be detected when Citibank alone clears $3 trillion a day in New York.

Michael Levi, professor of criminology at Cardiff University, is conducting an ESRC study on the making and transfer of international financial crime policy. He is also co-author of a UN study on money-laundering.

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