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Wednesday, 7 November, 2001, 17:18 GMT
Following the money trail
A man counts dollar bills while using a laptop
Money laundering is getting ever more sophisticated
by BBC News Online's Sarah Toyne and Jeremy Scott-Joynt

Financial authorities around the world are stepping up their efforts to trace illegal money flows in the wake of the attacks inflicted on New York and Washington DC on 11 September.

Law enforcement agencies in the US are well aware that one of the best ways to prove a case against Osama Bin Laden, who has been identified as the chief suspect, is to follow the money.

No intelligence organisation - except the Directorate of Revenue Intelligence in India, perhaps - has ever effectively cracked the (hawala) system

Prof Barry Rider
IALS, London
How were the hijackers supported? And how did the money make it into their hands in the US and elsewhere without being traced?

No-one is under any illusion that the task will be an easy one.

Tracing the flow of illicit money is a complicated, time-consuming business, and the cards are stacked against investigators.

To help boost the chances of finding a paper trail that could lead back to the perpetrator, regulators are planning to upgrade their systems for uncovering the laundering of dirty money.

Imprecise estimates

But experts believe the task is going to be an extremely difficult one.

Despite years of intense intelligence interest in Osama Bin Laden estimates of his resources vary wildly.

Some authorities quote figures of $50m a year drawn from investments dating back to his youth in Saudi Arabia.

Osama Bin Laden
No-one knows just how much money Bin Laden has
Others say much of his fortune was invested on projects in his former refuge, Sudan, and is now lost to him as a result of his forced departure in 1996.

In evidence presented at trials of his alleged comrades, some witnesses talk of multi-million dollar bank accounts scattered across the Middle East, the US, Europe and Asia and filled with funds creamed off Islamic charities.

But others point to parsimony, quoting examples of penny-pinching and bare-bones operations.

The United States has taken action to freeze the assets of financial networks with alleged links to Bin Laden's Al Qaeda terror network.

President Bush has added 62 names to a list of 27 individuals and organizations named in October as having possible links to Al Qaeda.

Cheap at the price

However, terrorism experts say that an operation such as the attacks on the US would not necessarily have been all that expensive.

"It would not be that expensive, not millions of pounds but hundreds of thousands, provided that you have enough dedicated people," said Paul Rogers, professor of peace studies at Bradford University.

"Even if you had 50 people involved for a year, that would still not be a tremendous amount of money."

But Prof Rogers said it was important not simply to focus on Bin Laden. "There could be lots of support from other sources than him," he said.

Follow the money?

And setting aside the question of just how much money is involved, the practical problem remains. How do authorities trace the money in the first place?

Banks don't have the people or those with enough experience to play Sherlock Holmes... The processes are very skilled. How can you possibly detect all of them?

Senior UK banker
Suspicious transaction reports (STRs) are hardly reliable, many experts fear. Some banks are less than diligent about filing them, and not only the "correspondent banks" which sometimes consist of little more than a brass plate on a door and a nominated director in a house down the road.

Even if the reports are filed, usually a required practice for any sum over about 10,000, the regulators may be too snowed under to pay attention.

The US Financial Crimes Enforcement Network (FinCEN), which oversees anti-money laundering efforts at the moment, is notorious in US banking circles for having a huge backlog of STRs.

And banks complain about being forced to be policemen.

"Banks don't have the people or those with enough experience to play Sherlock Holmes," said one senior UK banking executive.

"The processes are very skilled - they are run through 'legitimate' companies. How can you possibly detect all of them?"

And the weight of STRs, "know your customer" rules and other regulations is too much of a burden, he says.

"If we were to implement all the regulations, bankers would be doing nothing else. And the regulations are now so tight in some of the offshore places, you might have a better chance getting money into a retail bank in New York and London rather than Jersey."

That has certainly been proved in recent money laundering cases. When regulators probed the money stolen from Nigeria by former dictator Sani Abacha, they found much of it had passed through London institutions.

The regulators have to ensure bankers police themselves because the money flows through the major banking centres are now so huge that keeping track is near impossible.

Avoiding the paper trail

But however clever a money laundering scheme might be, the aim is always the same: disguising the paper trail of transactions from dirty money to clean.

Usually this happens through layers of "shell companies" - firms which exist only on paper, perhaps with directors whose sole responsibility is to be a front man with a sinecure - anonymous bank accounts, bearer shares, over-or under-invoicing on general trade deals and a range of other techniques.

But what if you could avoid the paper trail altogether?

That could prove to be the real difficulty in tracing money back to those responsible for the US attacks - especially if Bin Laden really is behind them.

The secret lies in an alternative banking system hundreds of years old, known in India as hawala and in Pakistan - and Afghanistan and the Middle East - as hundi.

According to Prof Barry Rider, director of the Institute of Advanced Legal Studies in London and an expert on financial crime, the trust-based hundi system is entirely normal, and prevalent wherever there is a South Asian or Middle Eastern diaspora.

"Say I'm working in the UK and want to sent money back to a village in Pakistan," he said. "I could get a bank transfer, but that's going to be at the official exchange rate. And what good will it do my family in a village with no bank?"

Instead, he says, you find the hundi broker - often a local small businessman - give him the money, and after a short time his contacts back home will deliver the money, at the black market rate, in local currency and minus a handling fee, to your relatives.

No paper trail, no fuss. And no money ever crosses a border - discrepancies in the two-way flow are settled up at the end of the month, or perhaps every half year.


Which makes it perfect for drug traffickers, for example - Afghan drug smugglers have used Pakistani hundi brokers for years.

More recently, the Chinese "chop" system - where no money changes hands at all, and instead "tokens" (often now passwords sent by email) are used as the equivalent of letters of credit for gold or diamonds deposited with trusted third parties - has been used by the Afghan drug and arms trade.

Two of the organisations which have had their cash frozen by President Bush are understood to be hawala networks.

"No intelligence organisation - except the Directorate of Revenue Intelligence in India, perhaps - has ever effectively cracked the system," says Prof Rider.

"You could count the number of successful penetrations on the fingers of one hand."

Transatlantic efforts

The Bush administration has now unveiled a package of measures concentrating on the biggest of money laundering operations.

US Attorney General John Ashcroft
US authorities are ramping up the search for terrorist money

On 18 September the Federal Reserve ordered all banks, domestic and foreign, under its jurisdiction to search through their records for any accounts or transactions involving the 19 people identified by the FBI as the hijackers.

The government will also identify and focus on specific areas of the US where money laundering is rife, via a new body to be called the Foreign Terrorist Asset Tracking Center with staff drawn from all US law enforcement and intelligence agencies.

The aim is to "map" the finances of terrorist organisations.

In the UK, Chancellor of the Exchequer Gordon Brown told the BBC's Today programme that banks needed to tighten their rules on oversight of suspicious transactions.

The reporting of suspicious transactions is seen as a cornerstone of compliance with the global anti-money laundering effort, spearheaded by an international Paris-based group, the Financial Action Task Force (FATF), affiliated to the OECD.

UK Chancellor of the Exchequer Gordon Brown
Brown: plans to tighten up bank oversight
"It's necessary to create that wider (reporting) obligation on international institutions," Mr Brown said.

"But equally it's necessary to have a system of reporting so that there's not only no safe haven (for terrorists) but no hiding place for terrorist money."

One bank account supposedly connected to the US terrorists, at a Barclays Bank branch in Notting Hill in London, has already been closed.

Switzerland, a country whose reputation for banking secrecy has often made its banks a prime suspect in money laundering investigations, says its task force is "working at high speed" to see if any terrorist-linked funds had flowed through Swiss institutions.

And other European countries are following suit.

UK Chancellor Gordon Brown
This system of tracking terrorist money can only work if we deal with the weakest links"
Judith Kipper, CSIS
"It's going to take a lot of time and a lot of patience to identify things that are suspicious in the financial world"

The investigation

War on al-Qaeda


See also:

18 Sep 01 | Business
17 Aug 01 | Business
01 Aug 01 | Business
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