Sigal Mandelker, undersecretary of terrorism and financial intelligence at the U.S. Department of the Treasury, testified before the Senate Committee on Banking, Housing, and Urban Affairs on Jan. 17 to discuss efforts to combat terror financing.
“The foundation of our economic authorities is a strong and robust anti-money laundering, combating the financing of terrorism [AMLCFT] regime, and one of my top priorities … is to ensure that the AMLCFT framework remains strong and effective,” she said. “Such a regime keeps illicit actors out of the financial system and allows us to track and target those who try to slip through.”
It’s a task not just reserved for the United States. It’s part of a global effort among cooperating countries and agencies to seek out rogue actors wending their way through financial markets worldwide to fund nefarious efforts. Perhaps most dangerous are those who dodge and weave behind seemingly innocuous fronts to funnel money to weapon of mass destruction (WMD) efforts that can range from conventional to nuclear and everything in between.
Dr. Jonathan Brewer, an adjunct senior fellow at the Center for a New American Security, has investigated avenues to determine rogue financiers of WMDs for years. His report, The Financing of Nuclear and Other Weapons of Mass Destruction Proliferation, released Jan. 24, explores funding and proliferation of WMDs with insight and recommendations of how global leaders can better track sources of WMD financing. It’s not an easy undertaking. In fact, it’s a “needle in a haystack” scenario.
“Part of the problem is that procurement for WMD programs involves procurement of goods and materials which are typically industrial goods and materials, and for the most part look perfectly innocent,” Brewer told Homeland411. “They are materials that could be used for a variety of perfectly legitimate purposes.”
International Financial System
The “financial elements of a WMD program,” he writes in the report, include three stages—fundraising, disguising the funds within the financial system, and then procurement of “material, technology, and logistics” for a given WMD program.
Brewer said the most interesting aspect of the process is the work overseas where individuals procure the materials, because that takes place within the international financial system and can involve major banks and financial institutions.
“The question is how do those banks detect such transactions? And this is really quite difficult, because we’re talking about banks that handle millions of transactions on a daily basis,” he said. “A portion of the goods and materials might be listed under international multilateral export control regimes as being particularly tentative or dual use. … They can be used in prohibited nuclear, biological or chemical programs or they might be used for legitimate purposes.”
Brewer said the tracking process is extremely difficult in practice. It involves tracking a transaction’s patterns and details to identify “characteristic typologies” that might be unique to a particular transaction. He explored this in depth in Study of Typologies of Financing of WMD Proliferation, a report he released last year for Project Alpha at the Centre for Science and Security Studies at King’s College in London.
“It’s very difficult to say, hand on heart, here’s a typology which is completely indicative of proliferation,” he said. “You will have in place procedures to, for example, screen for sanctions lists, sanctions that have been imposed on WMD programs.”
Brewer used North Korea as an example, noting that bodies such as the United Nations, European Union, and the United States already have procedures in place to scrutinize individuals who may be associated with rogue North Korean WMD efforts.
“The problem is the North Korea WMD programs, for example, operate behind front companies, and [a] very complex network, so banks in practice, although they’re screening for designated individuals, they’re probably unlikely to see them in their transactions,” he said.
Trying to detect information on covert efforts is a monumental task, as the list of international players grows, including various governments, intelligence and security agencies, and other authorities such as customs. A big hurdle, Brewer said, was information sharing among governments as well as the private sector.
“If you’re a bank, for example, you will say in connection with financing proliferation, ‘What is it that I’m actually obliged to do by the regulators?’ he said. “One can look at typologies, for example, one could look at suspicious indicators, but if you’re a bank, do you incorporate those suspicious indicators into your monitoring systems because they’re suspicious indicators of financing proliferation if you’re not specifically required to do so by the regulators?”
Brewer noted two paths a financial institution might take. One might be concerned and vigilant to ensure they don’t unwittingly process a proliferation financing transaction, while other institutions might just do exactly what regulators require them to do and little else.
Ultimately it comes down to what regulators require, he said. In the United States, banks must follow specific regulations regarding suspect transactions, but overseas, Brewer said his impression is that there’s less expertise, limited resources, and limited use of relevant data.
Brewer’s Jan. 24 report outlines some of the primary tools the United States uses in combating proliferation financing. These include “criminal indictments and civil asset forfeiture,” requiring financial institutions to file various reports on suspect transactions and taking advantage of provisions of the U.S.A. Patriot Act, among other efforts.
The report urged the international community to enhance its financial controls, otherwise countries such as North Korea and others will continue acquiring illicit capabilities. In addition, it recommends “better implementation of existing controls,” which can serve as a foundation for the future. Brewer suggested in the report that it’s likely too late for sanctions and other efforts to stifle North Korea’s nuclear pursuits, but hope is not lost for others intent on financing such programs.
“[T]he current restrictions on Iran’s nuclear program will largely fall away in 2025, and putting in place now a strengthened framework to identify and disrupt [financing of proliferation (FoP)] will enhance the international community’s options to monitor, and if necessary, restrain the program after 2025,” he wrote. “Identification and disruption of FoP also could play a key role in identifying and constraining any future nuclear or other WMD programs initiated by states in Asia, the Middle East, or elsewhere.”
© 2018 Homeland411
Click here to subscribe to the Homeland411 weekly newsletter.