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Trans-national Crime CFT - Introduction, Issues and Best Practices

Trans-national Crime CFT - Introduction, Issues and Best Practices. Non Traditional Security Course – RSIS, NTU / 22 Aug 2007. Prepared by: Gun awan Husin. Agenda . CFT – Key Concepts CFT Counter Measures Implementation Issues Roles of Financial Sector Policy Recommendations

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Trans-national Crime CFT - Introduction, Issues and Best Practices

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

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

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

  4. Top 5 risks in the region Gunawan Husin · 22 August 2007 · page 4

  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 Gunawan Husin · 22 August 2007 · page 5

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

  7. Terrorism and Crime • Suspects + Money = Act • Suspects + Act = Money Gunawan Husin · 22 August 2007 · page 7

  8. CFT KEY CONCEPTS Gunawan Husin · 22 August 2007 · page 8

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

  10. Gunawan Husin · 22 August 2007 · page 10

  11. Recruitment Supplies Propaganda Terrorist Financial Needs Travelling Safe House Communication Training Bribery Gunawan Husin · 22 August 2007 · page 11

  12. Targeting Terrorist Financial Network Attack Operational Cost Organisational Cost Funds Flow Gunawan Husin · 22 August 2007 · page 12

  13. Terrorist Financing • Sources of Funds • State sponsors • Private Donors • Charities • Legitimate business enterprises • Criminal Activities Gunawan Husin · 22 August 2007 · page 13

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

  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 Gunawan Husin · 22 August 2007 · page 15

  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 Gunawan Husin · 22 August 2007 · page 16

  17. COUNTER MEASURES Gunawan Husin · 22 August 2007 · page 17

  18. CFT Counter Measures – The Resolutions http://www.un.org/terrorism/sc/htm Gunawan Husin · 22 August 2007 · page 18

  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 Gunawan Husin · 22 August 2007 · page 19

  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? Gunawan Husin · 22 August 2007 · page 20

  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 Gunawan Husin · 22 August 2007 · page 21

  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 ? Gunawan Husin · 22 August 2007 · page 22

  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 Gunawan Husin · 22 August 2007 · page 23

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

  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 Gunawan Husin · 22 August 2007 · page 25

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

  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 Gunawan Husin · 22 August 2007 · page 27

  28. ROLE OF FINANCIAL SECTOR • (First and Last line of defense) Gunawan Husin · 22 August 2007 · page 28

  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 Gunawan Husin · 22 August 2007 · page 29

  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 Gunawan Husin · 22 August 2007 · page 30

  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 Gunawan Husin · 22 August 2007 · page 31

  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 Gunawan Husin · 22 August 2007 · page 32

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

  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 Gunawan Husin · 22 August 2007 · page 34

  35. IMPORTANCE OF FINANCIAL INVESTIGATIONS Gunawan Husin · 22 August 2007 · page 35

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

  37. Benefits of Financial Investigations • Full profiles provide: • Behaviours • Locations • Associates • Email • Telephone • Monitoring – precursor activity Gunawan Husin · 22 August 2007 · page 37

  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 Gunawan Husin · 22 August 2007 · page 38

  39. Gunawan Husin · 22 August 2007 · page 39

  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 Gunawan Husin · 22 August 2007 · page 40

  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 Gunawan Husin · 22 August 2007 · page 41

  42. CFT Policy Brief Gunawan Husin · 22 August 2007 · page 42

  43. Future Direction • 24/7 incident support • Account monitoring • Transaction monitoring • Intelligence Exchange • Academic Collaborations Gunawan Husin · 22 August 2007 · page 43

  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 Gunawan Husin · 22 August 2007 · page 44

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