Threat finance is an enabling factor of crime and terrorism, and therefore, a challenge to both national and international security. The integration of global financial systems, as well as technological innovation and proliferation, has reduced barriers to threat finance and money laundering while making it difficult for authorities to detect or disrupt these illicit operations. The American Security Project has compiled this presentation to provide an overview of threat finance and the methods used to launder money, as well as measures aimed at countering these activities.

1. Threat
Finance
and
Financial
Intelligence
Some
Facts
and
Figures
December
2012

2. The
problem
space
• Terrorism
and
crime
are
business
opera:ons,
requiring
a
number
of
inputs
in
order
to
successfully
plan
and
execute
criminal
acts.
• Due
to
the
illicit
nature
of
these
actors’
opera:ons,
funding
for
such
ac:vi:es
must
be
disguised
so
as
not
to
reveal
either
its
source
or
intended
use.
• According
to
the
U.N.
Office
on
Drugs
and
Crime,
illicit
cash
flows
were
es:mated
to
account
for
2-­‐5%
of
the
global
GDP,
amoun:ng
to
US$800
billion
to
US$2
trillion
per
year.

3. Defining
the
concepts
• Threat
finance
– The
means
and
methods
used
by
organiza:ons
to
finance
illicit
opera:ons
and
ac:vi:es
that
pose
a
threat
to
U.S.
na:onal
security
and
global
financial
stability
• Financial
intelligence
– The
means
and
methods
used
by
legi:mate
actors
and
authori:es
to
discover,
disrupt,
and
deter
the
financing
of
threats
to
U.S.
na:onal
security
and
global
financial
stability
• Money
laundering
– The
process
by
which
proceeds
of
crime
are
concealed
and
made
to
appear
legi:mately
sources.
– The
target
of
An:-­‐Money
Laundering
(AML)
and
Counter
Threat
Finance
(CTF)
policies
and
regula:ons

4. The
actors
• Foreign
Terrorist
Organiza4ons
(FTOs)
• Drug
cartels
and
narco4cs
traffickers
• Human
traffickers
• Transna4onal
Organized
Crime
(TOC)
• Weapons
of
Mass
Destruc4on
(WMD)
proliferators
• Emerging
actors
and
crimes:
– Cyber
crime
– Iden:ty-­‐related
crimes
– Cultural
property
trafficking
environmental
crimes
– Organ
trafficking
– Piracy

5. The
methods
• Money
laundering
is
the
underlying
method
of
threat
finance.
The
“laundry
cycle”
has
three
phases:
– Placement
• The
point
at
which
the
proceeds
of
crime
enter
the
conven:onal
financial
system.
At
this
stage,
the
money
is
s:ll
directly
associated
with
the
crime
(“dirty
money”).
– Layering
• Disperses
the
funds
in
order
to
obscure
the
sources
of
proceeds
and
the
individuals
involved
in
the
opera:on.
– Integra4on
• At
this
stage,
the
funds
have
been
“washed”
(no
longer
directly
associated
with
the
crime)
and
withdrawn
from
the
financial
system
for
use
by
the
actor
once
again.

6. The
methods,
con:nued…
• Typologies
vary
between
actors,
but
common
sources
of
funds
and
laundering
methods
include:
– Counterfei:ng
– Extor:on
– Fraud
– Kidnapping
– Tax
evasion
– Not-­‐for-­‐profit
(NFP)
or
shell
organiza:ons
– Direct
dona:ons
from
(un)knowing
individuals
• In
nearly
all
cases,
a
shell
organiza4on
is
involved
at
some
stage
in
the
laundering
opera4on.
•
Laundered
proceeds
are
frequently
routed
through
jurisdic4ons
that
have
inadequate
AML
prac4ces,
or
bank
secrecy
laws
that
hinder
coopera4on
with
AML
inves4ga4ons.

7. Significant
U.S.
CTF/AML
policies
• Bank
Secrecy
Act
(1970)
• Money
Laundering
Control
Act
(1986)
• An:-­‐Drug
Abuse
Act
(1988)
• Annunzio-­‐Wylie
Money
Laundering
Suppression
Act
(1992)
• Money
Laundering
Suppression
Act
(1994)
• Money
Laundering
and
Financial
Crimes
Strategy
Act
(1998)
• USA
PATRIOT
(Uni:ng
and
Strengthening
America
by
Providing
Appropriate
Tools
to
Restrict,
Intercept
and
Obstruct
Terrorism)
Act
of
2001

8. Organiza:ons
in
CTF/AML
• Interna4onal
– Financial
Ac:on
Task
Force
(FATF)
– The
Egmont
Group
of
Financial
Intelligence
Units
(FIUs)
– United
Na:ons
Office
on
Drugs
and
Crime
(UNODC)
– Organisa:on
for
Economic
Co-­‐opera:on
and
Development
(OECD)
• Domes4c
–
U.S.
Department
of
the
Treasury
– U.S.
Department
of
Jus:ce
– Federal
Bureau
of
Inves:ga:on
– Financial
Crimes
Enforcement
Network
(FinCEN)

9. Organiza:ons
in
CTF/AML
• The
above
list
is
not
exhaus4ve
– Numerous
interna:onal
organiza:ons
are
involved
in
countering
money
laundering
and
transna:onal
crime.
– Frequently,
private
industry
is
beher-­‐placed
to
iden:fy
suspicious
transac:ons
and
monitor
trends
in
financial
ac:vi:es.
– The
domes:c
policies
of
individual
na:ons
and
voluntary
prac:ces
undertaken
by
private
industry
are
equally
instrumental
in
CTF/AML
efforts.