What a Tangled Financial Web Terrorist Networks Weave

The seizure of $150 million in cash from “entities linked to Hizballah, including the now defunct Lebanese Canadian Bank (‘LCB’),” was announced today by the United States Attorney for the Southern District of New York and the Drug Enforcement Administration.

The case stems from a civil money laundering and forfeiture complaint filed by the United States government in December, which alleged “a massive, international scheme” that cleaned up, then funneled, massive amounts of cash through legitimate businesses to terrorist organizations in the Middle East.

According to Victor Comras, a renowned authority on terrorist financing who led the State Department’s foreign policy trade control and sanctions programs, implemented UN Security Council measures against Al Qaeda and the Taliban, and served on the UN Panel of Experts on North Korea sanctions, terrorist financing generally tends toward the mundane, though sometimes is shot through with a creative streak.

“The nexus between criminal activity and terrorism has gone on for years,” Comras, who is also the author of Flawed Diplomacy: The United Nations and the War on Terrorism, tells me. “Credit card fraud, petty crime, the drug trade — those have been the primary ways money is raised for terrorist organizations. They’re also very good at it, very imaginative. If you can think of a scheme, they have too.” (Complex as many of them are, some schemes are quite pedestrian. As Comras pointed out in a 2005 paper published by the Center for Contemporary Conflict at the Naval Postgraduate School in Monterey, California, “One of the groups financing Al Qaeda, the Themar al-Mubaraka Company, grew sesame, peanuts, and white corn for the group on a farm near Ed Damazin, Sudan.”)

The backbone of the enterprise announced today? Used cars.

How It’s Done

Per government documents filed in the case, “at least $329 million was transferred by wire from LCB and other financial institutions to the US for the purchase of used cars that were then shipped to West Africa” between 2007 and 2011.

Some of the money reportedly came from drug sales, which then financed the purchases of the cars. After the cars were sold overseas, the proceeds “were funneled to Lebanon through Hizballah-controlled money laundering channels.”

From there, it was smooth sailing. From the civil complaint, obtained via the US Attorney’s Office:

A network of money couriers controlled by Oussama Salhab, an alleged Hizballah operative living in Togo, transported tens of millions of dollars and euros from Benin to Lebanon through Togo and Ghana. Salhab and his relatives also own and control Cybamar Swiss GMBH, LCC (“Cybamar”), a transportation company based in Michigan that was frequently used to ship cars to West Africa, as well as other entities involved in the scheme. Cash transported from West Africa was often received at the Beirut airport, where Hizballah security safeguarded its passage to its final destination.

Indeed, the reach of US-imposed sanctions tend not to extend to such parts of the world. Documents related to the case attest that “money couriers are sometimes instructed over the public address system to deplane first, and are escorted to private rooms in the airport where the cash would be received.”

If providing personal escorts and private money-counting rooms for Hizballah operatives sounds brazen, Comras says it’s all a matter of perspective.

“When you’re dealing with certain groups, there is a consensus worldwide that they are terrorists,” Comras tells me. “Al Qaeda is designated by the United Nations as a terrorist organization. But when you talk about Hizballah or Hamas, things become difficult, as many countries don’t consider them terrorists. They do business with them; to them, that’s OK.”

Comras says that while we’ve done “a damn good job here in tightening up the reins on the flow of funds to terrorist organizations,” the international community is an extremely weak link in the chain.

“You go out into the wide world and funding is still very much available for Al Qaeda, the Taliban, Hizballah, Hamas,” he points out. “In Saudi Arabia, funding for Hamas is still quite legal and quite active. In Iran, Syria, and many other countries, funding flows to Hizballah unimpeded. We can see how well the Taliban has been able to arm itself and become a major national security issue.”

It’s a combination of lax enforcement and, Comras explains, “a lack of political will, to a certain degree.”

“One one end, you’ve got countries like Saudi Arabia that provide bounties to the families of suicide bombers,” he says. “On the other, you have countries that just lack the resources or structures to really enforce these things. That’s one of the reasons why West Africa often appears in these situations; their systems aren’t really capable of monitoring these kinds of activities.”

How to Spot Terrorist Financial Activity

“Let’s start with the fact that we’ve been at this since 2001, so we have 11 years of experience and growing,” Comras says. “We have put enormous resources behind counterterrorism and counterterrorism financing, and one of the first areas those agencies responsible concentrate on is the financial transaction side, because that’s something you can follow.”

Beyond the sophisticated compliance systems and regulatory guidelines that have been put in place, banks must “know their customers.”

“The intelligence community – and the investment community – have certain profiles they look for,” Comras says. “And when they see certain profiles, that can set off an alert. When banks see suspicious transactions, they provide reports to FinCEN [the Financial Crimes Enforcement Network, an agency operating under the aegis of the Department of the Treasury], which generates someone looking more closely at it. If a series of reports looks suspicious, that may set off an investigation.”

Of course, banks still can — and do — get caught flat-footed at times. In July, the Senate’s Permanent Subcommittee on Investigations accused HSBC of failing to review thousands of suspicious transactions over the past 10 years. In June, an FBI agent’s sworn statement alleged that Mexican drug cartel proceeds were being laundered through Bank of America. In April, US regulators accused Citigroup of improperly establishing and maintaining anti-money laundering programs. And over the past two years, Wachovia paid $160 million to settle Justice Department claims that the bank enabled a Mexican cartel to launder drug money through its accounts. (Beyond banks, Wal-Mart was accused last week by Reps. Elijah Cummings and Henry Waxman, the ranking members of the House Oversight and House Energy committees, of bribery and “questionable financial behavior” including tax evasion and money laundering in Mexico.)

What’s Next?

As Comras wrote in his paper for the Naval Postgraduate School:

“Winning the war on terrorism financing is not impossible. But it is very difficult. New ideas must be tested and applied to dealing with this 21st century scourge.”

Today’s seizure by the US Attorney and the DEA is a good start. But, as Victor Comras says, it is but one tool in what must be a comprehensive package of measures if terrorist financing networks are ever to be dismantled.”

To that end, the current sanctions in place against Iran provide a look at just how hard it is to make a dent.

“Europe is still the biggest supplier of goods to the Iranian market,” Comras says. “In my view, we are overstating the impact that these sanctions have had. Life is not as comfortable there as it once was, but what we’re doing has to have a hell of a lot bigger impact to get where we need to go.”