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Compliance & Risk

US banks still vulnerable to terror finance 20 years after 9/11, experts say

Brett Wolf  Regulatory Intelligence

· 5 minute read

Brett Wolf  Regulatory Intelligence

· 5 minute read

Panelists at a recent webinar discussed how US banks are still vulnerable to the threat of terror financing and illicit money laundering even two decades after 9/11

As we commemorated the 20th anniversary of the 9/11 terrorist attacks, U.S. banks continue to be under greater scrutiny for anti-money laundering compliance than they were two decades ago; however, re-emerging rivalries between government agencies and an erosion of public-private sector intelligence-sharing could be increasing the country’s vulnerability to terror finance activity, experts said during a recent webinar.

Further, it appears that little has been done to address the financial element of domestic extremism as demonstrated by the January 6 U.S. Capitol insurrection.

The FBI’s Terrorist Financing Operations Section (TFOS), created after the 9/11 attacks to bolster the gathering and effective use of financial intelligence and which previously had assisted public-private sector cooperation, was dismantled in 2019 amid a bureaucratic reorganization.

As a result, “the expertise and the guidance that is uniformly needed is not there anymore,” said panelist Dennis Lormel, first head of TFOS, during a webinar hosted by consultancy AML RightSource. “From a [counter-]terrorist financing perspective, I think we’ve taken kind of a step backwards,” Lormel said. “Where’s the capacity to share that information going forward?”

Another panelists, John Roth, former chief of the U.S. Department of Justice’s Asset Forfeiture & Money Laundering Section and one of the authors of the 9/11 Commission’s report on terror finance, agreed. “Losing a centralized control over terrorist financing is a huge blow,” Roth explained. “When terrorist financing is everybody’s responsibility, that means it is no one’s responsibility. We’re going to a pre-9/11 where there was no centralized repository of intelligence or coordination of anything else, so as we look forward, this should be troubling.”

Roth added that cyberattacks such as the ransomware attack against Colonial Pipeline in May — the most disruptive U.S. cyberattack on record — is “a classic example of asymmetrical warfare like al Qaeda was using against us in the 9/11 attacks.

“Are we fully prepared to combat that in a way that makes sense? What is the financial services community’s role in that? I have no idea,” Roth said.

Worries over law enforcement cooperation

Cooperation between law enforcement agencies is “better” than before the 9/11 attacks thanks to the FBI’s Joint Terrorism Task Forces (JTTFs) and fusion centers, but there is reason to be concerned about complacency, Lormel said. “There’s an age-old problem between different agencies and interagency jealousies, and I think over time that complacency comes back and it’s human nature that those animosities lead to a lack of cooperation and information-sharing at the level you need — so you need to be kick-started by another event, unfortunately, perhaps.”

When asked what the “biggest change” has been for banks since the 9/11 attacks, panelist Rick Small, a former Federal Reserve enforcement and investigations official and head of financial crimes compliance at Truist Bank, cited “increased scrutiny on our AML programs.” However, Small added, that when it comes to spotting terrorist financing, “we haven’t advanced that much.

“Banks aren’t going to be able to find terrorists by looking at financial transactions,” he said. “The only way we’re going to find terrorists is if law enforcement or intelligence agencies give us information [that] we can look at, and maybe we can then find money movement that will help in identifying and maybe stopping some attacks.”

Because of this, in the wake of terrorist activity, “banks are still, at the end, looking backwards and saying ‘What [data] did we have based on what we know now?'” Small noted.

Domestic extremism & terrorism

John Byrne, executive vice president of AML RighSource and moderator of the panel, noted the Jan. 6 attack on the U.S. Capitol and the domestic terror finance risks it highlighted. Yet, the U.S. government has not yet provided guidance to financial institutions, Bryne said. “The question for us in the AML community… is ‘What happens here?'”

Small said the challenge that domestic and international terrorists pose for banks is essentially the same. “We don’t know who they are,” he said, noting that hundreds of people have been indicted for their roles in the Jan. 6 attack. But “who would have said prior to the indictments and their names becoming known that those were people of interest that the banking sector should be looking at, and what would we be looking for?” Small asked.

“A lot of banks, once the information was available, went back and looked at transactional activity and I’m sure filed suspicious activity reports, but that’s reactive,” Small said.

“It will help with prosecutions, but I’m at a bit of a loss as to what we as banks can do proactively without a lot more information from the law enforcement and intelligence communities.”

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