Prosecuting money launderers is the best way to stamp out terrorism and corruption.
n 2015, British authorities caught Hezbollah-linked operatives stockpiling more than 6,000 pounds of explosives on the outskirts of London, new reports revealed last month. The British deserve praise for unearthing the London bomb factory. But they did not destroy the underlying commercial or financial structures that allowed the group to buy and stockpile such materials.
For too long, counterterrorism operations have focused narrowly on disrupting attacks. Without aggressive prosecution of those who carry out the groups’ financial transactions, the illicit networks that provide financial and logistical support for Hezbollah are likely to remain intact.
The United States has begun taking steps in the right direction. Last month, Paraguayan authorities extradited the businessman Nader Mohamad Farhat to face money laundering charges in Miami. Until May of last year, he ran one of the largest currency exchanges in the Argentina-Brazil-Paraguay Tri-Border Area. According to a U.S. Justice Department press release announcing the indictment of his co-conspirators (the cases have since been merged), Farhat participated in “an international money laundering scheme relying on the complexities of global trade … to launder millions of dollars for transnational drug traffickers and other bad actors.”
Farhat’s case could lay bare the intricacies and magnitude of money laundering in the region—which serves as a hub for such activity—including for the Lebanese terrorist group Hezbollah, to which Farhat is allegedly connected. U.S. prosecutors indicted him on drug trafficking and money laundering charges, not material support for terrorism. However, the U.S. State Department envoy on counterterrorism, Nathan Sales, made it clear at a public event commemorating the 25th anniversary of the bombing of the Jewish Community Center in Buenos Aires (which is believed to have been carried out by Hezbollah, though a Palestinian front group initially claimed responsibility) that he believes Farhat is a “Hezbollah supporter.”
Prosecuting Farhat is the right approach. Washington should be working with its partners to use the legal tools at its disposal, including the Financial Action Task Force (FATF)—an international intergovernmental watchdog tasked by its member states (37 countries comprising the most important global financial centers in the world) with tightening compliance standards to crack down on illicit finance. The FATF has the ability and the mandate to fight a much more robust war against international money laundering, not just to target white-collar criminals but to stop the flow of money to Hezbollah and other terrorist groups.
The FATF defines trade-based money laundering as “the process of disguising the proceeds of crime and moving value through the use of trade transactions in an attempt to legitimise their illicit origins.” Such schemes typically entail the deliberate over- and undervaluation of commercial merchandise, and corresponding misrepresentation of it, so that it becomes a conduit for the transfer of value. Companies involved may be moving real merchandise or may be simply generating a paper trail to justify banking transactions. They may be moving counterfeit goods while declaring the much higher value of their authentic equivalents. Given their systematic misrepresentation of the actual worth involved, the perpetrators of such schemes almost invariably engage in tax evasion as well. The bottom line is that the merchandise moved is a cover to transfer value back to criminals who cannot receive payments through the formal financial system.
The United States can leverage its influence inside the FATF to encourage countries to adopt more stringent controls over their banking sectors and over merchandise at ports of entry. Such controls would reduce the amount of dubious transactions and increase inspections of suspicious cargo. For example, it can devote more financial resources and additional personnel to support the U.S. Immigration and Customs Enforcement’s Trade Transparency Unit (TTU) in its international partnerships, which aim to do a better job at combating trade-based money laundering. These TTU partnerships involve the exchange of trade data with foreign countries that enter the partnerships. Data exchange is a crucial step to spot invoice discrepancies (e.g., different weights declared, at either end of the shipment, for the same cargo) and anomalies (e.g., impossibly low prices for the merchandise declared). This model, which the United States has been promoting through the FATF, will greatly increase access to trade data by law enforcement agencies and port authorities, such as customs officials, who can then more easily spot, monitor, and investigate anomalies in trade flows.
The Tri-Border Area is a convenient region for trade-based money laundering. It is a well-known center for contraband and the sale of counterfeit goods, and its illicit economy has an estimated value of $18 billion a year. Yet many of the companies involved are American, which exposes the U.S. financial system to considerable reputational risk.
U.S. law is part of the problem, since, much like offshore jurisdictions and unlike most European countries, it does not require basic information about company ownership to be public and easily available. In legal terms, it is difficult to determine the beneficial ownership—or who really benefits from the activities—of privately held companies. Trade-based money laundering schemes exploit this secrecy, since they often rely on multiple front companies traceable to a single owner to generate the paper trail necessary to move value across jurisdictions. Read more at Foreign Policy
