www.derby.ac.uk/lhss

Terrorist finance Perspectives

on informal systemsthe UK Context.

Dr Karen Clubb 2014

www.derby.ac.uk/lhss

IVTS – traditional model of operation Jurisdiction A Jurisdiction B

transaction information/code

Payment Collection

settlement / consolidation

Payment pathway transaction information pathway

Hawaladar A Hawaladar B

Client A Client B

www.derby.ac.uk/lhss

The Demonisation of Hawala the backdrop to UK regulation

• Post 9/11 – increased scrutiny• FATF SR VI (Recommendation14) • Financial intelligence • Risk reduction - FATF technical note UK

July 2011

Dr K Clubb October 2014

www.derby.ac.uk/lhss

Money Laundering Regulations 2007

• No differentiation by risk• No exemptions • Registration – fit and proper test Reg 28,30• Risk based approach - Part 2• Jurisdictional assessment – FATF R1, UK 2014,

4th EU Directive • Management of ML/TF profile• SARs reporting • Overseas agents

Dr K Clubb October 2014

www.derby.ac.uk/lhss

Impact of regulation of MSBs

• Increased transparency• ‘Upskilling’ of operators • Increased formality• Change in operational structures• Disproportionate increased workload/ cost• Trade based laundering unaffected• RBA - reliant supervisory guidance • Risk averse attitude of banks• Little consideration of ‘cultural fit’ & financial inclusion• Concern re prosecution

Dr K Clubb October 2014

www.derby.ac.uk/lhss

Assessing effectiveness

• Prosecutions (Sproat 2010) • Volumes of assets frozen /seized • Number of SAR’s filed (NCA SARS Annual

Report)• HMT Sanctions- compliance• HMRC - compliance/ enforcement - HMT

2012/13 report • Financial intelligence – TFU usefulness?• Independent review – cost/benefit• Effect on remittance users & activity

Dr K Clubb October 2014

www.derby.ac.uk/lhss

Effectiveness of regulation

• Merger of AML/ CTF questionable - • Terrorist finance - lower threshold for risk tolerance • Specific funding offences (Alexander 2009)• Seizure and forfeiture - little data • General deterrence from increased vigilance • Due diligence and suspicion • Non-compliance – supervisions and sanctions • Quality/ incidence of SARs reports • Lowering of transaction thresholds • Variable responses to risk • Methodology – FATF 2013 (Ryder 2013)• Promoting financial inclusion- Dahabshill MSB

Dr K Clubb October 2014

www.derby.ac.uk/lhss

Lessons learnt conclusions

• Wider considerations impact/ effectiveness• Jurisdictional risk assessments • Regulatory proportionality • Quality of supervision • Community support & outreach • Support of humanitarian/ charitable objectives• Pakistan Remittance initiative (2009)• Policy – multiagency working group ‘safe corridors’ 2013

Dr K Clubb October 2014

www.derby.ac.uk/lhss

References1 David Anderson QC Third Report on the operation of the Terrorist Asset Freezing etc Act 2010

( december 2013) para 2.37

2 World Bank Migration and Remittances: Recent Developments and Outlook 1 No 22 April 1 2014

3 JMLSG Guidance in respect of Money Service Businesses 28 May 2014

4 Census statistics (2011) Office of National Statistics

Diagram slide 2 El Qorchi M, How does this informal funds transfer system

work, and should it be regulated? Available at http://www.gdrc.org/icm/hawala.html Date

Accessed 27/09/2014

5 IMF ‘United Kingdom: Anti-Money Laundering/Combating the Financing of Terrorism

Technical Note’ IMF Country Report No. 11/231 July 2011

PhD Thesis ‘A critical examination of the anti-money laundering legislative framework for the prevention of terrorist finance with particular reference to the regulation of alternative remittance systems in the UK’ Karen Cooper, Leeds University 2014.

Dr K Clubb October 2014

www.derby.ac.uk/lhss

Bibliography• Alexander R ;Money Laundering and Terrorist Financing how to fight terrorism without defeating

the law;• FATF ;International Standards on Combatting Money Laundering and the Financing of Terrorism

and Proliferation – The FAT Recommendations’ (2012) • FATF ‘Methodology for Assessing Technical Compliance with FAT Recommendations and

Effectiveness if the AML/CTF systems’ (February 20130• FATF ‘National Money Laundering and Terrorist Financing Risk Assessment’ ( February 2013) • HM Treasury, ‘The Regulation of Money Service Business: A Consultation’ (September 2006)• HMRC Guidance for Money Services Businesses’ (MLR8 July 2010)• HM T’reasury Anti-Money Laundering and Counter Terrorist Finance Supervision Report’

(2012/13)• NCA, ‘Suspicious Activity Reports (SARs) Annual Report (2013)• Ryder N ‘To Confiscate or not to confiscate ? A Comparative Analysis of the confiscation of the

proceeds of crime legislation in the United States and the United Kingdom’ 8 J Buis L 789• World Bank fact Book (2011• ‘Terms of Reference for the Action Group on Cross Border Remittances’ available at

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/295344/TOR-_OVERVIEW.pdf

• Dahabshiil Transfer Services Limited v Barclays Bank plc Harada Limited, Berkeley Credit and Guarantee Limited v Barclays Bank plc [2013] EWHC 3379

• R v Patel [2012] EWCA Crim 2479

Dr K Clubb October 2014