Financial sector on alert over terrorism financing problem 

Karen O’Brien, Global
Compliance Solutions
Senior Partner

Monday,  November 28, 2005

Terrorism financing makes up only a small percentage of total money laundering, but the financial sector is taking it seriously because it is difficult to detect and it only takes one transaction of terrorist financing to ruin a company according to industry experts. 

Global Compliance Solutions Senior Partner Karen O’Brien said that terrorist financing frequently is difficult to detect because it often comes from legal sources of income.

“There is only a small percentage of funds that are laundered around the world that is terrorist financing which is .2 percent,” said Ms O’Brien. “But it is a huge problem. Terrorist financing is important, because it only takes a little money to kill people.”

Ms O’Brien explained that money is often diverted from legal business and charities to terrorist groups. 

“Now non-profit organizations are being called upon to be more accountable, to have financial statements and to have a board of directors,” she said.

She added the bulk of terrorist financing money is distributed outside the traditional banking system through a hawala, which is based on trust between individuals who share an ethnic background. 

However, Ms O’Brien explained that even though most terrorist funds are distributed through this informal system, businesses should not let their guard down.

“Should one wire transfer go through your company it could destroy your company’s reputation and put your company at risk. 

“Compliance officers should go beyond due diligence and Know Your Customer (procedures) and really know who the real living breathing person is because there is someone at the other end making decisions, controlling the accounts, and giving directions and it is important to know who that person is,” she said.

According to a report released by the Financial Reporting Authority there were seven Suspicious Activity Reports (SARs) submitted in the past year which were for terrorist financing. 

Eduardo D’Angelo Silva, President of the Cayman Islands Bankers’ Association said that it may be difficult to detect, but it is easier to spot in Cayman than in major financial sectors such as New York, London and Hong Kong.

“Most terrorist financing is different than from money laundering, because terrorists don’t need millions of dollars,” said Mr D’Angelo Silva. “Most of the time, they only need a few thousand dollars to operate. 

“Those transactions are different because we don’t have a lot of retail banks in Cayman so small transactions will be spotted easier. Terrorists prefer locations like New York, London or Hong Kong, because they have a huge number of small transactions so it is easier to disappear in a large volume.”

Mr D’Angelo Silva added that much of the information on SARs provide a small piece of information in a large puzzle and it takes the resources of countries sharing information to put together a full picture of terrorist financing.

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