Treasury: Uncloak true business owners to disrupt terror-financing

The federal government is pushing firms that register in the United States to reveal the identities of their controlling owners, as al Qaeda affiliates increasingly turn to shell companies for money, the Treasury Department’s intelligence chief said Thursday.

Successful sanctions largely pulled terrorist financing underground toward the end of the last decade, according to U.S. officials. Now, al Qaeda in the Arabian Peninsula and other splinter groups are resorting to funding mechanisms such as kidnapping for ransom, couriering money through the hawala system of handoffs among trusted partners and beneficial ownership schemes where individuals with a controlling interest hide behind the cover of a different legal title-holder.

“Al Qaeda today -- the al Qaeda that is holed up in Pakistan -- is in a much weaker state than it was,” David S. Cohen, Treasury undersecretary for terrorism and financial intelligence, said during remarks at the Center for Strategic and International Studies. This week, White House officials acknowledged thwarting an apparent Yemeni-driven plot to bomb a U.S.-bound flight with concealed explosives more resilient than those worn by the failed underwear bomber on Christmas Day 2009.

“When we designate individuals who are financial supporters of al Qaeda, that has the effect of making it much more difficult for those individuals to operate,” Cohen said. “That has largely prevented al Qaeda from using the formal financial network to move money.”

Concerned about front companies financing illicit activities, some lawmakers have proposed legislation that would force businesses to declare their beneficial owners, who are the real controlling interests, in financial filings. A U.S. citizen in 2010, for example, pleaded guilty to supporting al Qaeda partly through the sale of his company, Hafssa LLC, which was doing business as Truman Used Auto Parts.

Not waiting for Congress, Treasury’s intelligence unit, the Financial Crimes Enforcement Network, earlier this year took steps to stipulate that banks name the beneficial owners of their account holders. A March advance notice of proposed rule-making sought public comment on that potential requirement. Acknowledging that business fronts are a “weakness” in countering money laundering, Cohen said he supports congressional mandates as well as addressing the issue through the regulatory regime.

Meanwhile, FINCEN also is pursuing big data analysis to find hidden relationships among terabytes of banking transactions that may indicate dirty money. Big data typically refers to parsing unimaginable quantities of structured information in databases and nonstructured information strung across many sources in multiple formats. In summer 2011, Treasury surveyed the market for a tool to crunch financial transactions totaling 9 terabytes of data -- equal to a pile of typewritten pages almost 460 miles high.

Still, tracking financial supporters of terrorism means going offline in many cases. The hawala handoff system largely is immune to U.S. financial transparency tactics. “What makes it difficult is that it is in some respects below the threshold” of a banking transaction, Cohen said. In addition, AQAP terrorists have raised millions of dollars by kidnapping for ransom, he said. The United States is urging allies not to pay the rewards, which, so far, has deterred some cells from taking U.S. hostages, Cohen added.

(Image via Dmitriy Shironosov /Shutterstock.com)