Counter-Terrorist Financing: The Role of the MLRO

INTRODUCTION

Counter-terrorist financing would appear to be the poor cousin of anti-money laundering. It is not uncommon for the two to be lumped together as if they were virtually identical. To take one example among many, the UK Government launched a strategy in 2007 to combat money laundering and the financing of terrorism.1 The very fact that the two are addressed together is telling, and to be sure, reference is made throughout the document to 'crime and terrorism' or 'criminals and terrorists'. Although it acknowledges that 'terrorism and organised crime [...] are distinct phenomena with differing drivers',2 the strategy deals with them in broadly the same way by proposing to 'deter crime and terrorism', 'detect the criminal or terrorist abuse of the financial system' and 'disrupt criminal and terrorist activity'.3 A reader might be forgiven for wondering whether anti-money laundering and counter-terrorist financing differ in any substantial way at all. Furthermore, it is perhaps also noteworthy that MLROs themselves are responsible for reporting possible terrorist financing as well as money laundering: in this case, the very professional title potentially obfuscates the distinction between money laundering and terrorist financing. (It is perhaps nonetheless fortunate that the acronym has not been replaced by MLTFRO.) Judging from a various statistics, it might likewise be tempting to imagine that counter-terrorist finance is of negligible concern. The Serious Organised Crime Agency reported that in 2009 it received 228,834 Suspicious Activity Reports ('SARs'), of which 4,772 (2.09%) were made by solicitors.4 By comparison, only 703 SARs were made in relation to terrorist finance, of which a meagre 11 (1.58%) were made by solicitors.5 A similar story is told by conviction rates: Home Office statistics show that, since 11 September 2001, there have been only 11 convictions for terrorist finance offences under Part III of the Terrorism Act 2000.6 Terrorism in general would appear to have dwindled in the national consciousness, too: a poll in April this year claimed that only 11% of people in the UK currently consider defence, foreign affairs and terrorism as amongst the most important issues currently facing the country.7 To be sure, the terrorist threat has no doubt been overstated at times by scaremongering politicians and journalists alike at the expense of other unreported atrocities. Nevertheless, counter-terrorist financing remains a genuine concern for MLROs: failing to report suspicious activity could result in a criminal conviction, while conversely making a report in the wrong circumstances could expose a professional to the possibility of being sued by the client—something which is more real than ever in light of the Court of Appeal's recent decision in Shah v HSBC Private Bank (UK) Ltd.8 It is therefore essential that MLROs understand the circumstances in which they should make a terrorist finance SAR. In order to do so, it is necessary to appreciate the significant differences between the anti-money laundering and counter-terrorist financing regimes in the UK, as well as the fundamental distinction between money laundering and terrorist financing themselves. The two are, in fact, far too readily aligned, and in order to fully understand their reporting obligations, MLROs must understand both what is unique to terrorist finance and also the ways in which it can intersect with money laundering. This paper therefore begins with a detailed examination of the difference between money laundering and terrorist financing, before proceeding to survey, in the second part, the various international legislative and policy measures which have been adopted to fight terrorist financing, as well as examining in more detail the relevant legislation in the UK. This leads to a consideration, in the third part, of the MLRO's obligation to report suspected terrorist financing. Particular attention is paid to the problem of how to avoid civil liability in relation to the client. The implications of the Shah decision have so far primarily been considered in relation to the UK anti-money laundering regime; it is submitted, however, that this case may pose an even greater conundrum for professionals who suspect their client of terrorist involvement. I. DISTINGUISHING TERRORIST FINANCE

Funds as Means to an End

Terry Davis, Secretary General of the Council of Europe, succinctly pointed to one of the central differences between money laundering and terrorist financing when he stated that 'terrorists seldom kill for money, but they always need money to kill.'9 Although it might appear obvious, it is worth bearing in mind that money laundering has a distinct purpose from terrorism: the former is ultimately geared towards generating profit by 'cleaning up' the proceeds of crime, whereas, for terrorists, money is merely the means to effect some other change. This is, admittedly, an overly simple distinction. Iain Cameron has pointed out that terrorism and organised crime can overlap considerably since members of a terrorist organisation may also be interested in increasing their wealth.10 Furthermore, the supposedly terrorist purpose of an organisation might in fact conceal a profit-making agenda. Terrorists and organised criminals may also have a 'symbiotic relationship', especially in dysfunctional states where authorities exercise little control.11 For this reason, it is naive to presume that counter-terrorist financing measures are a sure-fire way of combating terrorism. A tough money-laundering regime may certainly lead to a reduction in the various forms of delinquency which generate profit for organised criminals, since there is little point in drugs-trafficking if the profits cannot be enjoyed safely; the same is not necessarily true in reverse for terrorism, though, since terrorists can always find an alternative means of funding their activities. Michael Kilchling, for one, has stressed that the preventative component of counter-terrorist financing regimes may be 'largely ineffective where terrorist organisations are involved' since 'removing financial means or specific finance channels cannot remove the original danger'.12 Legitimacy of Funds

This leads to a further dilemma, namely that the principle of 'dirty' money which is central to the idea of anti-money laundering does not necessarily apply in the case of counter-terrorist finance. This is because terrorism need not be funded by criminal activity: on the contrary, it may be financed by perfectly legitimate earnings. It is believed, for instance, that the attacks of 11 September 2001 were funded by lawful funds transferred to the US by means of wire transfers, physical transportation of cash and use of debit and credit cards to access overseas accounts.13 The money used to fund the London transport bombings on 7 July 2005 would by all accounts have been even harder to identify as terrorist funds, since, according the official report, Mohammad Sidique Khan funded it himself using his earnings as a teaching assistant, supplemented by credit cards and a loan: The group appears to have raised the necessary cash by methods that would be extremely difficult to identify as related to terrorism or other serious criminality. Khan appears to have provided most of the funding. Having been in full-time employment for 3 years since University, he had a reasonable credit rating, multiple bank accounts (each with just a small sum deposited for a protracted period), credit cards and a £10,000 personal loan. He had 2 periods of intensive activity – firstly in October 2004 and then from March 2005 onwards. He defaulted on his personal loan repayments and was overdrawn on his accounts. Jermaine Lindsay made a number of purchases with cheques (which subsequently bounced) in the weeks before 7 July. Bank investigators visited his house on the day after the bombings.14 Low Cost

This problem is all the more serious given that terrorist acts are relatively cheap to carry out. The US Government estimated that the cost of executing the attacks on 11 September 2001 cost between $400,000 and $500,000.15 At the other end of the spectrum, insider information suggests that a Hamas suicide bombing costs in the region of $1,500.16 The estimated cost of recent high-profile attacks are also remarkably slight: £8,000 for the London bombings on 7 July 2005, $10,000 for the Madrid train bombings on 11 March 2004 and $30,000 for the Jakarta JW Marriot Hotel bombing on 5 August 2003.17 It is therefore not an exaggeration to liken terrorist funds to a needle in the proverbial haystack that is the international banking system. Legitimacy of Goals

Perhaps a more fundamental dilemma, however, is the question of what constitutes terrorism in the first place. The decision as to whether a particular organisation is terrorist cannot but be political: as Richard Alexander points out, the Counsellor for Security at the Turkish Embassy might well state that funds transferred to Turkey by members of the Kurdish community might well give reasonable, or even strong, grounds for suspicion that they are to be used for terrorist purposes, but a jury might well disagree and 'much may ultimately depend on their political sympathies.'18 Another particularly striking example would be the Palestinian Liberation Organization, which the US Congress determined to be a...