Banks in defence of the Homeland: Nexus of Ethics, Legality and Suspicious Activity Reporting in the United States of America’



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Banks in defence of the Homeland: Nexus of Ethics, Legality and Suspicious Activity Reporting in the United States of America’
Dr. Nicholas Ryder and Dr. Umut Turksen*

Abstract

This article considers the impact of the legislative and policy responses by the United States of America towards terrorist financing. Firstly, the article provides an overview of the mechanisms utilised by terrorist organisations to fund their operations and the subsequent legislative reactions. Secondly, a critical analysis of the two key parts of the US CTF policy – the ability to freeze or confiscate known or suspected terrorist assets and the imposition of onerous reporting requirements on financial and credit institutions, known as the SAR regime is provided. Thirdly, the article highlights the banks’ use of CFT provisions that raise the spectre of racial profiling, and critiques the fairness and success of such measures imposed on particular group of persons. It is argued that these practices, such as SARs, are a shift to a pre-emptive criminal justice framework which raises serious questions as to their ethics and legality. The objective is not to provide a comprehensive analysis of the laws and policies, but to emphasise areas that have not yet been subject to sufficient scrutiny from the perspective of success and equality in the application of the US CFT regime.



Introduction
As a result of the al-Qaeda inspired terrorist attacks that took place on September 11th 2001, terrorist financing was propelled from political obscurity to the top of the United States of America’s (US) anti-crime strategy. Until this time, US financial crime strategy was concentrated on money laundering, fraud and bribery. This stance was almost identical to that adopted by the United Nations (UN), European Union (EU) and Financial Action Task Force (FATF) who directed their resources to money laundering. Interestingly, the term terrorist finance was only adopted by the UN in its Declaration to Eliminate International Terrorism.1 Additionally, it introduced the International Convention for the Suppression of the Financing of Terrorism in 1999, a legislative measures that was initially not implemented by many countries. The terrorist attacks on September 11th 2001 resulted in several significant policy developments in the US, which formed part of the ill-conceived and controversial “financial war on terror”. Funds that are utilised for the purposes of terrorism are defined by the International Convention for the Suppression of the Financing of Terrorism as including “assets of every kind, whether tangible or intangible, movable or immovable, however acquired, and legal documents or instruments in any form”.2 However, the “financial war on terror” was not a new concept because it was originally utilised by President Bill Clinton, who acknowledged that attacking the financial assets of al-Qaeda was important after they were found to be responsible for the bombings of two US embassies in Kenya and Tanzania.3 The importance of tackling terrorist financing and implementing an effective counter-terrorist financing (CTF) cannot be underestimated. It has been asserted by one commentator that targeting the sources of terrorist financing is “one of the most obvious strategies imaginable”.4 The international community, through a series of UN Security Council Resolutions, Regulations from the EU and a new set of Special Recommendations by the FATF, introduced, what it envisaged was to become a strict and effective set of CTF measures. One of the most controversial parts of these legislative instruments was the ability of a nation state to freeze and confiscate the assets of known or suspected terrorists. As a result of the terrorist attacks in September 2001, the UN Security Council passed a series of Resolutions that extended the scope of its confiscation mechanisms from money laundering to include terrorism. Gallant took the view that “the 2001 attacks in the United States gave the affiliation between terrorism and proceeds of crime global prominence. In the immediate aftermath of the destruction, the UN Security Council authorised an attack on proceeds linked to terrorism”.5 For example, UN Security Council Resolution 1373 provides that countries must prevent and suppress the financing of terrorist acts,6 criminalise terrorist financing,7 freeze the funds and other financial assets of people who commit or attempt to commit terrorist acts 8 and prevent its citizens from making funds available to people who commit or attempt to commit terrorist acts.9 The asset freezing provisions of Resolution 1373 must be read in conjunction with Article 8 of the International Convention for the Suppression of Terrorist Financing.10 This provides that each country is required to forfeit the funds used or due to be used for an offence created by Article 2 of the International Convention for the Suppression of Terrorist Financing.11 However, the extension of the confiscation measures to include terrorism must be questioned because the UN is utilising a ‘money laundering’ or ‘profit’ confiscation model towards a criminal offence that does not generate a profit. The financial process adopted by terrorists to accumulate funds can be contrasted with that adopted by money launderers. For instance, terrorist financing has been referred to as “reverse money laundering”, which is a practice whereby “clean” or “legitimate” money is acquired and then funnelled to support terrorism.12 Conversely, money laundering involves the conversion of “dirty” or “illegal” money into clean money via its laundering through three recognised phases.13 Therefore, the extension of the money laundering confiscation model to include terrorism must be questioned because terrorism is not a profit based crime. Another important part of a CTF policy is the use of financial intelligence collected by using suspicious activity reports (SAR) or suspicions transaction reports (STR). The US was one of the first countries to introduce legislation that compelled certain deposit institutions (e.g. banks) to file currency transaction reports (CTR) by virtue of the Currency and Foreign Transaction Reporting Act of 1970. In particular, the Act stipulated that “reports should be made of records of cash, negotiable instruments and foreign transactions”.14 Under the Act, the Secretary of the Department of Treasury is allowed to impose a set of reporting regulations so that certain information on financial instruments and transactions is retained. The reporting obligations were extended to include other types of white collar crimes including money laundering and fraud. However, with regards to forming part of the US CTF policy, the reporting obligations systematically failed due to the terrorist attacks in September 2001.15 The scope of the reporting obligations under the Currency and Foreign Transaction Reporting Act were extended by Patriot Act 2001 and the Intelligence Reform and Terrorism Prevention Act 2004 to the reporting of cross-border transmittals by certain financial institutions.16
There are of course other driving factors behind the CTF strategy: owing to technological advancements and globalisation, financial transactions have change in their speed, distance, volume, and nature and created anonymity.17 Subsequently, the potential for abuse and exploitation of financial institutions for criminal activity including terrorism have become greater. However, the volume and number of transactions flowing through the formal financial systems makes it very difficult to identify what money may find its way to alleged terrorists and other funds. This task is quite simply impossible.
Therefore, this paper begins by briefly identifying the mechanisms utilised by terrorist organisations to fund their operations. This paper then turns its attention to two key parts of the US CTF policy – the ability to freeze or confiscate known or suspected terrorist assets and the imposition of onerous reporting requirements on financial and credit institutions, known as the SAR regime.

Given the atrocities committed by terrorists and terrorist organisations in the last decade, establishing a normative and ethical approach toward countering terrorism may not seem to be salient to some. However, in order to have a sustainable, legitimate and ultimately effective counter-terrorism strategy, it can be argued that “ethical considerations are central to decisions involving discretion, force and due process that require people to make enlightened moral judgments”.18 Arguably such standards are even more important in the context of counter–terrorism because there is no internationally agreed definition of terrorism and the crimes of terrorism are often complex, value laden and a product of a particular political and moral judgment. Furthermore, the ‘war’ against terrorism is can be seen as a matter of international crime control.19 However, Hoffman argues that the war rhetoric employed by the US in its anti-terrorism strategy refuses to accept that “any body of law applies to the way this ‘war’ is waged” and eliminates numerous protections provided by international human rights law.20 This ‘war on terrorism’ approach seems to view the justice system as lacking capacity to prosecute terrorism thus legitimises the extraordinary practices that have emerged since 2001.


Some of these practices, such as SARs, are seen as a shift to a pre-emptive criminal “(in)justice framework”.21 Terrorist acts indeed create great insecurity amongst the public and an overview of the last decade indicates that the US public has been willing to accept restrictions on rights and freedoms.22 The scope of this article does not allow us to critique every aspect of the counter-terrorism strategy be it issues regarding the interrogation of suspected terrorists, the use of torture, indefinite detention, or the legitimate boundaries of anti-terrorist operations, which have been commented upon extensively elsewhere. Instead, this article will critically analyse the US counter-financing of terrorism policy and practice with particular focus on the banks’ use of the SAR system and address the implications of this regime on certain groups of people.
Sources of Terrorist Finance
The detection of terrorist finances is very difficult due to the extensive range of financial mechanisms used by terrorists.23 Some commentators have argued that terrorists have usually relied on two very different types of funding: state and private sponsors.24 State-sponsorship of terrorism is where national governments provide logistical and financial support to terrorist organisations.25 However, it is widely acknowledged that there has been a decline in state-sponsored terrorism, which has resulted in terrorists becoming self sufficient.26 There are an abundant number of sources of funding available to terrorists.27 The US Treasury Department has stated that terrorist “funds can be moved among corporate entities and financial institutions in many countries in the blink of an eye through wire fund transfers, making the untangling more and more difficult”.28 Terrorists are also utilising new electronic technologies to transfer money over the internet to conceal their true origin.29 It has been mooted that al-Qaeda has obtained monies from misapplied charitable donations and from lawful corporations.30 Terrorists have also acquired funding through traditional criminal activities, including benefit and credit card fraud, identity theft, the sale of counterfeit goods, arms, human and drug trafficking.31 Additionally, it has been argued that terrorists have utilised alternative or non-remittance underground banking systems as part of the war on the financing of terrorism. The use of such banking systems makes it difficult for the international community to prevent and detect terrorist finance.32 Underground banking is a phrase that has been used to describe informal banking systems, which takes place outside the formal regulated banking sector. One such method is the hawala system, which “was born centuries before Western financial systems in India and China”.33 Hawala has several different interpretations including assignment, change, transform or promissory note.34 The hawala system is an informal financial network based on trust which means that any funds transferred are difficult to detect.35 Pathak took the view that “unlike institutional banking, hawala networks make minimal use of written records; transfers of money take place based on verbal communications”.36 The association between underground banking systems and terrorist finance is due to the events of September 2001. As soon as the phrase ‘hawala’ was mentioned in the US following the terrorist attacks in 2001, politicians, law enforcement agencies and the media declared it as a “financial tool of terrorism”.37 However, this is misleading because underground banking systems are legitimate and heavily publicised. It has been argued that al-Qaeda has utilised the hawala system to support terrorist operations.38 It is important to note, however, that there is no conclusive evidence that al-Qaeda used the hawala system to fund the attacks in September 2001.39 The 9/11 Commission went so far as to conclude that the funds used for these attacks were directly transferred into the bank accounts of the terrorists through the formal US banking system, not through the hawala system.40
The International Legislative Response
Prior to the events in September 2001 the international community’s attempts to tackle white collar crime were directed towards the prevention of fraud, money laundering and the illegal drugs trade.41 Regulatory and law enforcement bodies were, therefore, not focused on finding terrorist monies.42 These terrorist attacks set in motion a new and inventive legislative approach towards attacking the sources of terrorist funding.43 McCulloch and Pickering took the view that after 9/11 “measures targeted at the financing of terrorism gained great momentum”.44 Therefore, the terrorist attacks of 2001 had an instantaneous effect, and dramatically altered the international communities’ policy towards the prevention and detection of terrorist funding.45 Any fight against terrorist finance is dependent on a highly coordinated and effective level of international co-operation. In an attempt to tackle the global threat of terrorist finance the US government ensured that the USA Patriot Act 2001 provided a series of extraterritorial provisions which require foreign banks to comply with the provisions of this controversial piece of legislation.46 However, this policy is flawed because its success is heavily dependent on the support of other nations, which is not always guaranteed. Myers took the view that “the US, cannot, reach foreign financial institutions and block terrorist accounts. Local governments must be persuaded to do that. Allies are important in the physical struggle against terrorism”.47 The international response to terrorist finance has been heavily influenced by the US, but led by the UN, which is “in the best position to lead the international coalition against terrorism”.48 The UN has indeed pioneered the response to combat terrorist finance and it adopted the International Convention for the Suppression of the Financing of Terrorism.49 This Convention contained a series of measures aimed at counteracting the movement of funds suspected of terrorist purposes.50 This was followed by UN Security Council Resolution 1373 (2001) which imposes four obligations on members of the UN. Firstly, it specifically requires states to thwart and control the financing of terrorism.51 Secondly, it criminalises the collection of terrorist funds in states territory.52 Thirdly, it freezes funds, financial assets and economic resources of people who commit or try to commit acts of terrorism.53 Finally, it prevents any nationals from within their territories providing funds, financial assets and economic resources to people who seek to commit acts of terrorism.54 It is also important to note that Security Council Resolution 1373 makes reference to human rights, calling upon States to "take appropriate measures in conformity with the relevant provisions of national and international law, including international standards of human rights, ..." and reaffirms the need to combat by all means, "in accordance with the Charter of the United Nations," threats to international peace and security caused by terrorist acts. A more recent Security Council Resolution, 1963 (2010), reiterates that effective counter-terrorism measures and respect for human rights are complementary and mutually reinforcing, and are an essential part of a successful counter-terrorism effort, and it notes the importance of respect for the rule of law so as to effectively combat terrorism. Resolution 1373 is extremely important in the battle against the financing of terrorism. In particular, the obligation on member states to freeze assets is absolute and compels collective application.55 All UN Member States have submitted reports to the United Nations Security Council Counter-Terrorism Committee on the actions they have taken to suppress international terrorism; this includes blocking terrorist finances as required by Resolution 1373.
The US Treasury Department took the view that “the UN actions have been critical in winning support for our campaign, and they have been essential tools for building the international coalition against terror financing”.56 It has been argued that Resolution 1373 forms the basis of the international effort to counter terrorist finance.57 Myers noted that Resolution 1373 “presents a powerful tool to leverage co-operation by all states on financing issues, information sharing, police action, criminal prosecution, asset forfeiture, and border control”.58 However, “while it contains strong language, the resolution still has grey areas, such as its failure to define the term terrorist”.59 Further, Resolution 1373 can be criticised because it provides the individuals and organisations who have been accused of supporting terrorism with no opportunity within the UN to challenge the listing by the UN Counter Terrorism Committee.60 Another criticism is that UN Resolution 1373 will actually have a limited impact on the extensive number of sources available to terrorists and their continued ability to raise monies.61 As a result of Resolution 1373 “we are left with a patchwork of domestic, bilateral, and regional efforts that at best work in parallel but not complimentary fashion, and at worst work at cross-purposes”.62 The next part of the article concentrates upon the legislative response of the US towards terrorist finances.
The United States of America
The US strategy against terrorist finance has two objectives - to freeze terrorist assets and to disrupt their financial infrastructures. The US response to the prevention of terrorist finances was swift, but the results have been difficult to determine. The US policy has been hindered by the fact that there are too many federal agencies involved, with some having their own CTF policy.63 An important part of the US CTF policy is Presidential Executive Order 13,224,64 which “directed the federal government to wage the nation’s war against the financing of global terrorism”.65 This Order sought to “block [and freeze] all assets and interests in property of certain terrorists and individuals and entities materially supporting them”.66 Since its implementation the US government has attempted to deny terrorists admittance to the international financial system and limit their ability to raise funds. There are three important aspects of this law.67 Firstly, it covers global terrorism. Secondly, it expands the class of targeted groups to include those who are associated with designated terrorist groups.68 Thirdly, it clarifies the ability of the US to freeze and block terrorist assets abroad. The next part of the article considers the impact of the second and third part of the Executive Order.
Asset Freezing
The ability to freeze terrorist assets is one of the most controversial and effective ways to tackle terrorism. In September 2001 the US government began to freeze assets and bank accounts across the globe which they believe to assist terrorists and their operations.69 Their ability to freeze the assets of suspected or known terrorists is administered by the Office of Foreign Assets Control of the Treasury Department (OFAC).70 The Executive Order designated a number of groups and individuals as either a specially designated terrorist group or a foreign terrorist organisation for the purposes of freezing assets.71 As a result of the Executive Order, nearly 250 groups and individuals have been designated as terrorist organisations and $36m in 92 suspected terrorist accounts was frozen. In 2006, the Treasury Department reported that over 150 terrorist related accounts have been blocked in the US, more than 400 individuals and entities have been designated terrorist or terrorists supporters and approximately 40 charities that were transferring money to al-Qaeda, HAMAS and other terrorist groups have been designated and denied access to the US financial system.72 This part of the policy has produced mixed results and the freezing of assets has only “achieved modest success”.73 Weiss concluded that “in the months following the attacks, substantial funds were frozen … after this initial sweep, the freezing of terrorist assets slowed down considerably”.74 The number of suspected accounts and assets frozen represents a small fraction of the funds available to terrorists.75 Seldon warned that “despite laudable goals, many asset seizures have undermined the faith of foreign investors in the US”,76 and he also cited several failed prosecutions of individuals and organisations who also had their assets frozen following 9/11.77 The Treasury Department has defended its policy towards the prevention of terrorist finance and argued that as a result of asset freezing terrorists are “suffering financially as a result of our actions”.78
One of the most controversial aspects of the US government’s ability to freeze suspected terrorist assets can be seen in its attitude towards US based Islamic charities. US authorities assert that there is increasing evidence that terrorists are partly financed by followers who donate money to Islamic charities which is then transferred to terrorists.79 It has been estimated that al-Qaeda funds a large proportion of its operations through charitable donations.80 Crimm concluded that “approximately 30% of al-Qaeda financial resources were derived from charitable donations solicited in the US and abroad”.81 However, it must be noted that any accurate evidence of charitable donations being used by terrorist groups is extremely rare.82 It is, therefore, unsurprising that since a considerable percentage of al-Qaeda’s funding could be attributed to charitable donations, that the US government “has allocated substantial resources and efforts to blocking domestic organisations utilised in those fund raising efforts”.83 One of the first US Islamic charities to be classified as a terrorist organisation was the Holy Land Foundation (HLF). Since this announcement in December 2001, many other Muslim charities based in the US have also been given an identical classification, and had their assets frozen.84 The US authorities have argued that all of these organisations supported terrorist activities. However, the “level of the activity proven or alleged at this point varies from the innocuous to the extreme”.85 It must be noted that irrespective of the apparent success and robustness with which the US government has targeted this apparent source of terrorist finance, it has faced many problems in actually proving many of the terrorist related charges. Ruff has accused the US government of being “overzealous and using exaggerated facts to gain media attention, thus making the freezing of assets during a pending investigation particularly suspect”.86 Engel has also criticised this part of the anti-terrorist finance policy because the freezing of their assets has “confiscated the good-faith donations solicited fraudulently from Muslim-Americans”.87 Charitable giving, Zakat, is one of the five pillars of Islam which is practiced by US Muslims to provide humanitarian aid to overseas projects in some of the most impoverished regions in the world.88 As a consequence of the freezing of their assets, some of the largest US based Muslim charities89 had to be shut down and much needed aid has effectively been stopped. In some instances, such as the case of HLF, it was argued that ‘due process’ requirement90 - prior to designating them as a terrorist financier and freezing of their assets - was ignored. In response, the District of Columbia Court of Appeals held that due process rights were not infringed because of the important government interests at stake and the special need for prompt action.91 Similar to the SAR system (discussed below), freezing of assets can be based on mere suspicion or secret information unlike hard evidence of criminal activity which is required by the US Constitution in criminal cases.92 In 2007, directors of the HLF were prosecuted for criminal offences, namely providing ‘material support’ to terrorists and none were convicted of any of the charges made against them as the evidence produced by the government was not good enough to convince the jury to determine any wrongdoing.
It is clear that the US strategy of asset freezing can target organisation and individuals by designation and disable these entities whether they are innocent or not. It is not clear, however, if and to what extend these measures have blocked funds reaching actual terrorist organisations and prevented future terrorist activity. One can observe that charitable donations by the Muslim community in the US have declined dramatically owing to the fear of being branded as a terrorist and face criminal charges. Whilst the US government readily designated charitable organisations as terrorist, by the same token, it was not prepared to provide a ‘white list’ of safe charities to which the public could make their faithful donations without fear. The US Treasury Department did produce guidelines for Voluntary Practices for US Based Charities.93 However, it is argued that these ‘voluntary’ standards are too cumbersome and expensive particularly for smaller charities and that they would not diminish the risk of facing civil or criminal liability.94
In a vast majority of these cases the charges of supporting terrorism were either dropped or prosecutors were unable to prove any connections with terrorist activities.95 This policy must be criticised because the evidence linking each of these organisations to the funding terrorism was withheld from the media, the public and to the accused charities.96 It is evident that designated and targeted entities which are blacklisted and subject to an asset freezing order are helpless to refute the government’s case against them whilst the asset freezing order causes major economic disruption, financial hardship and dents the brand or the reputation of individuals, organisations and even of people who use these entities. The US governments’ policy toward the freezing of suspected terrorist assets is a short-term solution to a long term problem. It is an ineffective response to the funding of international terrorism due to the vast array of sources of funding available. The US government is clearly motivated by a political desire to make it look like they will actually catch and convict the financiers of terrorism.
Reporting Requirements
Another important part of the US CTF policy is the reporting requirements placed on financial and credit institutions. The USA Patriot Act 2001 contains a comprehensive package of provisions which aimed to bolster the anti-terrorist financing regulatory regimes.97 The Act was signed by President Bush on October 26 2001 and Title III increases the reporting obligations and permits the Secretary of the Treasury to impose additional money laundering requirements on financial and credit institutions.98 The Act introduced a series of regulations which are aimed at detecting terrorist finance prior to its introduction to the financial system.99 Under the Act, financial institutions are required to file a suspicious activity report (SAR) to the Financial Crimes Enforcement Network (FinCEN). A SAR is as a “piece of information, which alerts law enforcement agencies that certain customer activity is in some way suspicious and might indicate money laundering or terrorist financing”.100 The reporting requirements impose significant administrative burdens on financial institutions that already had to comply with reporting requirements under the Banking Secrecy Act 1970. The USA Patriot Act 2001 has led to an increased level of record-keeping, report filing, and internal policing requirements.101 FinCEN has reported since 2002, that the number of SARs filed by financial institutions has increased from 281,373 to 1.5m in 2011.102 Linn has argued that “US law enforcement agencies are drowning in SARs”.103 As a result, the imposition of more mandatory reporting requirements was inevitable following the attacks of September 2001 due to how the attacks were financed.104 However, it is questionable whether the “filing of a SAR following these transactions [to fund 9/11] would have made a difference”.105 This part of the policy is predictable because a large percentage of the monies used to fund the attacks in September 2001 were wired to the accounts of the terrorists directly through the US banking system. This is a view supported by Lyden who concluded that “it is highly questionable whether the provisions of the Act would have deterred or prevented the World Trade Centre attack”.106 Indeed, the reporting measures introduced by the USA Patriot Act 2001 may prove to be counterproductive. For example Lee noted that “the plethora of reporting requirements creates a sort of ‘needle-in-the-haystack’ problem for the authorities”.107 Increasing the level of reporting requirements on financial institutions will not prevent terrorist finance.
The US government claims that it has “pursued a comprehensive strategy for combating terrorist finance”,108 which has included the successful, yet controversial closure of the al Barakaat financial network, the Holy Land Foundation for Relief and Development, Afghan Support Committee, the Revival of Islamic Heritage Society and the Al-Haramain organisation.109 However, it has made limited headway against terrorist finance.110 Terrorist organisations have adapted to the legislative changes introduced in the US and they continue to have a vast array of sources of funding available. The impact of these legislative provisions on terrorist finance must therefore be questioned, as al-Qaeda continues to inspire an increasing number of terrorist attacks.111 If the US authorities are to achieve any level of success, the Obama Administration must bring these powers and federal authorities together to form a co-ordinated single strategy.
Implications for Suspects: Ethical and Legal Considerations
“There is something distasteful about a process which begins by convicting someone and then proceeds to inquire whether there is a case against them.”112
This section set out to assess the ethics and legality of the SAR regime. Hence it is important to address what we mean by ethics. Ethics may be defined as “good behaviour” or “what ought to be done”. These values often recognise the rights and interests of the society as a whole. While ethics and law are not synonymous it is often the case that they coincide and the former is seen as one of the sources of law and contributes to the good functioning and fabric of the society. As Erich Fromm said:
“The growing doubt of human autonomy and reasons has created a state of moral confusion where man is left without the guidance of either revelation or reason. The result is the acceptance of a relativistic position which proposes that value judgments and ethical norms are exclusively matters of taste or arbitrary preference and that no objectively valid statement can be made in the realm. But since man cannot live without values and norms, this relation makes him an easy prey for irrational value systems ... The demands of the state, the enthusiasm for magic qualities of powerful leaders, powerful machines, and national success become the source for his norms and value judgements (O)ur knowledge of human natures does not lead to ethical relativism, on the contrary, to the conviction that the sources of norms for ethical conduct are to be found in man’s nature itself; that normal norms are based on man’s inherent qualities; and that their violation results in mental and emotional disintegration.”113
While general business ethics encompass conscience based on honesty, integrity, fairness, courtesy, self-restraint, and consideration for other, the benchmarks against which the SAR system is assessed in this article are:


  • Do the counter-terrorism measures requiring banks to act as a law enforcement agent violate individual dignity?

  • Are the SAR and other reporting requirements for banks necessary?

  • Have these measures proven to be effective in detection, prevention of terrorist acts and conviction of terrorists?

  • Do these measures comply with constitutional rights and respect international human rights law principles?

Answers to these questions will indicate whether the measures for the prevention of financing of terrorism are ethical or not.
Banks are trusted by the governments, customers, shareholders, employees and the communities in which they operate.114 For each of these stakeholders, there are ethical obligations they have to meet. Banks are given a great deal of discretion and are allowed to exercise their own judgment when it comes to what to do with their money and how they assess risks including suspicious transactions.115 Statutes give explicit duty and obligations to banks for the stewardship of the economic activities and policing of malfeasant activities. However, given the limited effect SAR has had on CTF and the way it impacts people from certain sections of society, it is time to question the duties and discretion given to banks and establish if their practices confirm to ethical standards. In other words, we must look to the spirit of the law as opposed to the letter of the law. Only when these standards are met can we ensure integrity of the banks, affinity of stakeholders, and deal with the causes of terrorism.
As explained earlier, a plethora of financial crime legislation has found their way to the statute books. However, it is surprising that there has been limited critique of provisions pertaining to the suppression of financing of terrorism. This trend may be a result of a perception that financing of terrorism measures are relatively benign in comparison to, for example, interrogation and detention regimes that have become a common feature in the context of anti-terror policy in putative democracies following the events in September 2001, and less spectacular and deadly to report and critique than the military intervention and invasions in Afghanistan and Iraq and indefinite detention at Guantanamo Bay.116 Perhaps another reason for this lack of critique lies in the perception that banking and finance are seen as unconnected to traditional criminal justice, global justice or national security concerns. However, in contrast money laundering legislation and assets confiscation powers have become embedded in the criminal law over the past two decades and been the subject of extensive critical scrutiny.117
Based on mere suspicion, SAR by banks put the wheels of counter-terrorism measures in motion which can result in full scale investigation with serious ramifications for individuals even though there may be no conviction at the end. Counter-financing terrorism legislation allows for confiscation and freezing of assets and such measures can cripple individuals and other entities (e.g. charities) without conviction, without charge and without any evidence of criminal, let alone terrorist, activity. Thus, SAR can be detrimental for the principle of presumption of innocence and may erode the possibility of justice as well as the legal status of the individual.118 For instance, it may be very difficult to refute a case when a SAR is filed on the basis of a transaction originating from a ‘risk’ or a ‘rouge’ state, or suspicion is based on the country of origin or the ethnic background of the customer.119 There is simply no credible evidence which would suggest that there is evidence to distinguish terrorist financing that originates from legitimate sources from other financing. Indeed, credible and independent reports following the attacks in September 2001 state that the financial profile of the terrorists did not indicate that they were planning for terrorist-related activity.120 Arguably, owing to the near impossibility of distinguishing terrorist financing through any particular objective criterion of financial profile, non-financial profiles become critical. A number of studies pertaining to prosecutions involving terrorism indicate that non-financial profiles may include terrorism-related record (including media coverage of the suspected person’s activities), membership of charity or relief organisations, connection to terrorism “hot spots”121, or other more crude attributes such as race, religion and ethnicity (Arab-Muslim), gender and age.122

As McCulloch and Carlton aptly observe, a “number of the commentators on the suppression of financing of terrorism are rather unabashed about the need for financial institutions to discriminate according to customers' non-financial profiles to determine suspiciousness or unusualness”.123 For example, Bantekas is of the opinion that non-financial profiles make a significant contribution to detecting terrorist funds. He argues that this approach, “though used discriminatorily against individuals of Arab descent or the Muslim faith in the aftermath of September 11, can increase suspicion when combined with information based on the account and transaction profiles of a suspect.” Given the need to assess nonfinancial profiles at this stage, bank “staff will be alerted by indicators such as the person's background and knowledge of the local language, the presence of a spokesman, and other unusual features.”124 Statements by state officials such as the one made by former US Vice President Cheney: “They [non-US terrorist suspects] don’t deserve the same guarantees and safeguards that would be used for an American citizen going through the normal judicial process,”125 may also foster general prejudice. Furthermore, the pre-emptive application of investigation and criminal treatment by the authorities itself tends to stand as 'proof' of guilt because it intentionally or inadvertently sends the message that the person or persons punished were a threat.126 Undoubtedly, SAR regime also operates with a degree of secrecy thus it reverses one of the general principles of democracy, namely transparency.



Crawford opines that the doctrine of pre-emption as articulated and deployed by the United States counter-terrorism strategy broadens not only the circumstances in which aggressive of offensive military action is utilised but also the categories of interest that are seen as legitimate to defend. In doing so, financial activities are seen as a crucial factor in national security thus banks and the finance sector are given specific roles in the prevention of terrorism and its financing.127 This shift to future crime, pre-crime or pre-emptive strike regimes in law enforcement requires a wide spectrum of surveillance methods hence the banks are also used as surveillance machines via the SAR regime.
Another development to note is the diminishing of the difference between external (foreign) and internal (domestic) affairs and law enforcement. Both national and international legal instruments of counter-terrorism are increasingly justified on the basis of international cooperation and the state's coercive capacities and regulatory framework are paralleled or mirrored inside and outside national borders;128 a phenomena which critics have described as ‘policy laundering’.129 The linking of financial data with national security regimes under a framework of combating the financing of terrorism foments the process of social, religious, racial or ethnic profiling as a means of categorising and singling out individuals and organisations for differential treatment and reinforces social division and exclusion of already marginalised groups.130 Zedner argues that the means by which such groups are identified is wholly unreliable and unscientific because such determinations are based on attributes such as race, ethnicity and class prejudice and drawn on questionable presumptions about people's appearance, lifestyles and habits.131 It is argued that “people and organisations have few opportunities to be informed of the contents of financial intelligence gathered against them or to challenge its veracity or probative value when it is used to their disadvantage”.132
Given the potential dire consequences of being subject to a SAR, it is surprising that there are few safeguards provided. If there is a criminal charge be it related to terrorist offences or not, individuals are conferred numerous rights inter alia, fair and independent trial, presumption of innocence, right to legal assistance and the right not to be prosecuted twice for the same offence (ne bis in idem). However, the risk of injustice is exemplified by the US counter-terrorism regime which allows for a high degree of discretion (e.g. determination of a suspicious act) in the interpretation of the facts, data, and provides law enforcement, security agencies and executive branches of the government with a wide scope of enforcement powers. Unlike regular crime detection and investigations which rely on evidence, pre-emptive approach relies on intelligence by surveillance based on suspicion or a whim that a crime may occur sometime in the future. However, intelligence and profiling are not always based on hard evidence but instead may be subject to untested categories of people purportedly link to risk, media created perceptions or prejudice.133 Importantly, unlike evidence, intelligence is not always subject to a transparent scrutiny of the courts thus making it vulnerable to political manipulation. For instance, the 'compelling' intelligence, not evidence, “in relation to Iraq's weapons of mass destruction turned out to be, as Former United Nations weapons inspector, Scott Ritter, put it, 'not real, but a phantom menace, something conjured up with smoke and mirrors disguised as "irrefutable fact"'.134 This trend can clearly be seen in the context of SAR by the banks and results in certain groups being viewed as potential terrorists who must prove their innocence through consent or complicity with the state.135 According to Levi, such pre-emptive approaches in the criminal justice system existed before September 2001 in the context of organised crime and civil asset confiscation whereby the burden of proving one’s innocence was placed on the suspect.136 Thus, the trend of singling certain groups of people by counter-terror laws and pre-emptive methods in combating the financing of terrorism should not come as a surprise.
Some authors argue that the post September 2001 legislation gave rise to ethnic/religious profiling.137 After the terrorist attacks the US government and its agencies felt it was necessary to circumvent the long-established need to obtain ‘probable cause’ before investigating a person’s private affairs. Lee noted that “in an attempt to flush out the funds of foreign nationals who financed terrorism … the Fourth Amendment was trumped”.138
The USA Patriot Act 2001 has been used by US authorities in an attempt to generate “a master list of evil doers and their possible activities”.139 If a person enters into a legitimate transaction which has been designated by the financial institution as suspicious or high risk, the business deal will be the subject of a SAR or a cash transaction report. Whether or not these provisions are an example of Islamophobia or amount to racial profiling depends upon the interpretation of the phrase ‘suspicion’ by the employees of financial institutions. Lee contends that “if you are Black or Brown and living in America, you have probably been stopped and questioned by the police at some moment in your life … since the USA Patriot Act 2001 … if you are Brown, Muslim, national of Middle Eastern descent, ‘look Muslim’ or ‘of Middle Eastern Ethnicity’ that questioning may happen in a bank”.140 Lee adds that the USA Patriot Act 2001 “put banks in the business of practicing selective enforcement and racial profiling with every transaction, every hour of every business day”.141

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