Threat finance and financial intelligence

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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 …

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.

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  • 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.