It was during a standard AML investigation in a major bank that the penny dropped.
Years ago, like most professionals in the field, I was looking for ML breaches; guided by the perception that financing of terrorism is basically money laundering with a twist, a subset of ML if you will. During that investigation, my business partner, an expert in CFT operations and ML, pointed out that contrary to common practice, we should isolate terrorism financing typologies for the purpose of risk assessment and continue our investigation using separate parameters. Two days later, the same investigation had also uncovered a terrorist financing trail that had remained hidden for years and sponsored one of the deadliest terrorist groups in the world, simply because everyone was looking in the wrong place.
Terrorism financing (FT) is clearly different than money laundering (ML). While we tend to concentrate a large proportion of our efforts on suspicious transactions in ongoing ML investigations, FT transactions tend to remain hidden. To uncover them, we would be wise to develop a different set of tools.
I am not suggesting that one should create a separate CFT program on top of an existing AML program. Rather that it would be beneficial to define separate risk parameters in order to bring to light potential candidates for the all revealing EDD.
Thus, a good CFT/AML program would also encompass risk assessment parameters to allow for:
· ideological motivation as opposed to profit making
· legitimate source of funds as opposed to criminal
· suspicious relations rather than suspicious transactions
· small unreasonable amounts rather than large + smurffed transactions
· liner money trails rather than circular ones
and so on…
Regulators have now charged financial institutions with the social responsibility of spearheading the fight against financing of terrorist activities. We have raised that point in an appearance at a recent UN (IMO) London conference – Banking and innovation, where Tomer Zaharovich (Sunstone’s co-founder and managing partner) highlighted the evolution of duties and legal obligations.
In summary, financial institutions are now required to develop methodologies in order to enable them to meet their CFT obligations and acquire the tools to adequately tackle them. To that extent, a financial institution can make simple adjustments to their risk engine rather than spend large amounts of money on rebuilding the existing AML program and hiring more employees to staff it. Thus through shifting our search parameters from a transaction based to a behavioral based approach, we can be sure that we are looking in the right place.
CFT is the new AML