How Terrorists Send Money

[R.A. Hettinga]

<http://www.newmediajournal.us/staff/ehrenfeld/05032007.htm>

The New Media Journal

How Terrorists Send Money

Terrorism Dr. Rachel Ehrenfeld & John Wood

May 3, 2007


Advanced mobile technology, cooperation between international mobile
communications providers and international financial institutions and the
lack of regulations make for a swift, cheap, mostly untraceable money
transfer -- known as "m-payments" -- anywhere, anytime, by anyone with a
mobile telephone.

Members of the GSM Association and MasterCard are developing an m-payment
service to enable 200 million international migrant workers and the poor
who lack bank accounts to transfer money domestically and internationally.
According to the World Bank, 175 million migrants transferred at least $230
billion in international remittances in 2005. A recent U.N.-sponsored South
African study found that m-banking can be up to one-third cheaper for
customers than the current banking alternatives.

However, the spread of m-payments in less developed countries, which often
lack functioning anti-money laundering and anti-terrorist financing
regulatory frameworks, and where corruption is rife, will likely increase
money laundering and terrorist financing.

The abuse of the m-payments is easy when the stored value card is used. It
does not require a bank account, credit card or two forms of
government-approved identification to activate and use. It just requires
cash. Most cards set limits on the amount held on the card, but most can be
reloaded, allowing the transfer of thousands of dollars. Indeed, this
anonymous and mobile m-payment service is the best vehicle for criminals
and terrorists for transferring or receiving money.

Three billion people around the world have mobile phones, but only 1
billion have bank accounts, says the GSM Association. BearingPoint, a major
management and technology consulting company, estimated the unbanked
marketplace in the United States alone in 2006 at $510 billion. No wonder
that banks such as Citigroup, HSBC, JPMorgan Chase, as well as mobile-phone
companies such as Cingular, Verizon and Sprint, are clamoring for a piece
of the action. More than a dozen m-payment service providers are already
operating. The largest is PayPal, with more than 100 million Internet
accounts worldwide.

Here's how m-payments can work: You buy a stored value card for a certain
amount of dollars and a prepaid, disposable mobile phone. Next, you
register with the m-payment service provider using a free anonymous e-mail
account, your prepaid mobile-phone number and the money on the stored value
card. Using your mobile phone, you log on to the m-payment service provider
and give the number of the mobile phone to which you wish to transfer the
funds from your stored value card. The m-payment service provider sends a
message to the receiver's phone number asking where to transfer the money.
The recipient can request the transfer to his stored value card and
withdraw the funds from any ATM. Both sender and recipient can then throw
away their mobile phones and use new phones and new stored value cards for
another transfer, without any fear of detection.

In the United States, on Feb. 27, Citigroup teamed with Obopay, the mobile
person-to-person payment service provider, enabling not only South American
and Filipino migrant workers to transfer money to their families, but
perhaps also offering drug traffickers and/or supporters of al-Qaida, Hamas
and Hezbollah a safe way to send money to the Middle East or to each other.

The London-based HSBC, with more than 5,000 offices in 79 countries, and
its subsidiary, First Direct -- a telephone and Internet-based commercial
bank -- offer an m-payment solution over the Monilink World Wide Web
network. Such an extensive mobile banking network in countries, many with
close ties to and large potential terrorist populations, defeats any
attempt to stop terrorist financing. How many al-Qaida and Hamas
sympathizers in the United Kingdom are using this service?

In the Middle East, the Amman-based Access2Arabia offers mobile and
Internet banking services to customers in Algeria, Tunisia, Nigeria,
Lebanon, Syria, Saudi Arabia, Bahrain, Qatar, Sudan, Iraq, Ghana, Cyprus,
Gaza and Yemen. In January the National Bank of Dubai signed an agreement
for m-payments services with the Norwegian/European mobile company LUUP to
service 300 million people in the Middle East alone. Dubai, a major
international financial center, is also known as a money-laundering and
drug- and arms-trafficking haven for organized crime, al-Qaida, Hamas, Iran
and Hezbollah.

In the Philippines, which Hong Kong-based Political and Economic Risk
Consultancy (PBRC) terms "the most corrupted Asian country" and where
al-Qaida is active, at least 3.5 million people are using a service that
lets them transfer money, pay bills, give contributions to charities
locally and internationally, purchase prepaid Internet credits, and buy
gaming credit over the two major mobile networks operated by SMART
Communications and Globe Telecom.

Special security features of the m-payment system constitute a major
impediment to law enforcement and intelligence services that seek to detect
suspicious money transactions. Compounding the challenge is the fact that
the m-payment process leaves little to no audit trail, and lack of adequate
regulatory oversight makes the transactions untraceable.

The only applicable federal reporting requirement to providers of stored
value cards is the Currency Transaction Report rule. A CTR must be filed
for all cash transactions greater than $10,000 per day. However, the CTR
can be filed up to 15 days after the transaction has occurred, giving
terrorists and criminals enough time to disappear.

Furthermore, although almost all U.S. m-payment service providers are
registered as Money Services Businesses with FinCEN, the regulations do not
have specific provisions pertaining to them. Moreover, the government is
already constrained by international privacy and secrecy laws, as in the
Cayman Islands, Cyprus, Belgium and Panama.

Today, m-payment service providers cannot verify that the address given has
not been taken from the White Pages. And there is no way to ensure that the
Social Security number has not been stolen or "borrowed" from another
person -- alive, dead or in jail. As we learned from the 1993 World Trade
Center bombing investigations and trials, and the Sept. 11 Commission
Report, terrorists can easily acquire valid driver's licenses, visas,
Social Security cards and credit cards.

Since both terrorism and m-payments are global, the m-payment service
provider, as all those monitoring terror financing, should have immediate
real-time access to an integrated, closely monitored list of all
individuals, organizations, businesses and countries suspected of links to
terrorists.

Yet, in January, the U.S. Treasury's Financial Crimes Enforcement Network
-- or FinCEN -- told Congress that while "the reporting of cross-border
wire transfer data by financial institutions is technically feasible," law
enforcement needs another year to assess whether it would be "valuable to
the government's efforts to combat money laundering and terrorist
financing."

We do not have another year to waste. To stop money laundering and
terrorist financing in real time, the government needs to identify, develop
and implement the best methods and technologies available to regulate the
m-payment services. In fact, now is not too soon.

Dr. Rachel Ehrenfeld is author of Funding Evil; How Terrorism is
Financed-and How to Stop It, Director of American Center for Democracy and
a member of the Committee on the Present Danger.

John Wood is president of the Playfair Group.


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R. A. Hettinga <mailto: rah at ibuc.com>
The Internet Bearer Underwriting Corporation <http://www.ibuc.com/>
44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'