The money maze

Terrorist organizations will engage in all kinds of fraudulent activity to obtain financing for their attacks.

In April, police in Sydney, Australia, uncovered an alleged million-dollar fraud racket during the investigation of a local terrorist cell suspected of being responsible for the murder of a police accountant in October 2015.

The discovery was made as authorities kept tabs on the family and friends of 15-year-old Farhad Khalil Mohammad Jabar, who fatally shot Curtis Cheng, an unarmed civilian finance worker, outside the New South Wales police headquarters in Parramatta, about 25 km west of Sydney, The Sydney Morning Herald reported.

The teen gunned down Cheng as he walked out of the police station and then fired into the building before he was shot and killed by special constables. The building was home to several commands, including a Middle Eastern organized crime unit, although it is unknown if that had anything to do with the attack.

In the aftermath, an antiterrorism team charged 22-year-old Talal Alameddine with supplying the handgun to the shooter. That arrest, one of several related to the murder, led investigators to keep tabs on several other young men, including 25-year-old Ahmad Azaddin Rahmany. As a result of police raids, the part-time mechanic was charged in 2015 with illegally owning a stun gun and ammunition, for which he pleaded guilty and was given a two-year good behaviour bond.

Following his sentencing, authorities tapped his phone and became aware that he was the mastermind behind a complex and sophisticated fraud scheme, a court was told in April. “With nine other men, he allegedly faked pay slips, tax returns, [Australian Taxation Office] assessments, bank statements, [pay-as-you-go] records and company statements to obtain loans for made-up individuals and deregistered companies,” according to the Herald. “The group also allegedly approached companies, including Harley Davidson and BMW, with fake company documents to elicit money.”

Police called Rahmany the principal architect of the fraudulent undertakings. According to court documents, the group obtained loans of A$99,000 and A$85,433 (among other examples) by using false pay slips, bank account statements and employment statements of fake identities.

“Once aware of the alleged racket, the [joint counter terrorism team] was able to warn financial institutions, which declined the loans,” police said.

Whether the fraudulent schemes were intended to fund terrorism has not yet been determined, authorities said. But the connection between fraud and terrorism is well established.

“Terrorists derive funding from a variety of criminal activities ranging in scale and sophistication from low-level crime to organized narcotics smuggling and fraud,” Frank Perri wrote in an article on the fraud-terror link. Perri, CPA, CFE, is a former trial attorney, an adjunct professor of fraud examination at DePaul University in Chicago and a prolific author on fraud investigations. “CFEs need to know the latest links between fraud and terror.”

He listed the frauds commonly used to fund terrorist cells: credit card, wire, mortgage, charitable donations, insurance, identity theft, money laundering, immigration and tax evasion. In other words, the vast majority of frauds forensic accountants encounter on an ongoing basis. “Such groups will also use shell companies to receive and distribute illicit funds. Financing is required not just to fund specific terrorist operations but to meet the broader organizational costs of developing and maintaining a terrorist organization.”

Although terrorist attacks don’t necessarily require extensive funding — the 2005 London terrorist bombings that took 56 lives and injured 700 people cost about $15,600, according to Ian Ross, regional director of a security and investigations firm, in his book Exposing Fraud: Skills, Process and Practicalities — they still need financing to one degree or another.

When the FBI told Ramzi Yousef, one of the perpetrators of the 1993 bombing of the World Trade Center that was intended to topple the north tower into the south, that the landmarks were still standing, the terrorist reportedly said: “They wouldn’t be if I had had enough money and explosives.”

Forensic investigators need to be aware that terrorist organizations will engage in all kinds of fraudulent activity to obtain financing for their attacks. In their book Paying for Terror, authors David E. Kaplan, Bay Fang and Soni Sangwan noted that a “big racket for European jihadists is human smuggling.” They highlight an example from the early 2000s when a gang of militants “made over 30 landings on an island off Sicily, and that it moved thousands of people across the Mediterranean at some $4,000 a head.”

Illicit undertakings such as human trafficking usually require terrorist groups to engage in money laundering, which is so commonplace in the murky fraud-terrorism link that the Financial Action Task Force on money laundering (FATF), an international organization, expanded its mandate to include terrorist financing following the 9/11 attacks.

In recent years, FATF released a list of countries that don’t fully cooperate with its efforts to fight money laundering and terrorist financing. In 2015, for example, Iran, Myanmar and North Korea topped FATF’s list. In 2014, it named Algeria, Ecuador, Ethiopia, Indonesia, Pakistan, Syria, Turkey and Yemen as other countries not making sufficient progress in addressing the issues FATF considered vital to fighting the terror-money laundering link.

Identity theft, a central component of the fraud perpetrated in Sydney, is also a common aspect of terrorist cases, according to Judith Collins of the Michigan State University Identity Theft Crime and Research Lab. “All acts of terrorism enacted against the United States have been facilitated with the use of a fake or stolen identity,” she said.

As an example, “one of the al-Qaida terrorists involved in the 9/11 attacks had opened 14 bank accounts using several different names, all of which were fake or stolen,” according to Perri. “Terrorists often use stolen or fabricated Social Security numbers, credit cards and passports to create false identities and pay for their operations.”

He cited several reasons why terrorists are drawn to identity theft, which he described as “possibly one of the most lucrative enterprises that terrorists have engaged in,” adding that the crime provides more benefits than just money. “Identity theft allows them to avoid watch lists, obscure their whereabouts, assist in terrorist funding activities, and gain unauthorized access to entry points such as airline gates, border crossings or other monitored facilities. ... The 9/11 Commission Report established that the terrorists involved with the bombing of the World Trade Center committed identity fraud, noting that ‘travel documents are as important as weapons.’ ”

A stolen identity is the cloak of anonymity a terrorist needs to commit fraud, according to Denis Lormel, a former member of the FBI’s Terrorism Review Group.

In a June 2013 report, FATF cautioned lawyers to be aware of the reality that terrorist groups often need the assistance of legitimate legal professionals to conduct their financing transactions. “Case studies show that not all legal professionals are undertaking client due diligence when required,” it noted.

Forensic accountants should likewise be on the lookout for evidence uncovered during investigations that could be linked to terrorist financing, with the caveat that it’s important not to jump to conclusions, especially in relation to racial profiling.

The role of forensic accountants in combating terrorist financing is so important that in the aftermath of the 9/11 attacks, the US Treasury established the Terrorist Finance Tracking Program to identify, track and pursue terrorists and their networks. Employing such investigation methods as statistical and financial analysis and link-analysis tools, its forensic financial experts “have not only disrupted terrorist networks, they have saved lives,” the Treasury said in a news release. It cited, as one example of the program’s initiatives, the department’s use of subpoenas to the Society for Worldwide Interbank Financial Telecommunication — a Belgian-based company that operates a worldwide messaging system to transmit financial transaction information — seeking information on suspected international terrorists or their networks.

The Canadian government fights terrorist financing through FINTRAC and other bodies. In April, revenue agency officials provided the Senate with an example of that work, revealing that six organizations had their charitable status revoked due to concerns their fundraising was supporting terrorist groups.

Forensic accountants know all too well the wisdom of the famous quote in All the President’s Men — “Follow the money.”

Following the money is what forensic accountants do best. In a world where following the money trail could lead to — and even possibly foil — terrorist attacks, the need to be on guard for such possible connections has never been more important.

About the Author

David Malamed


David Malamed, CPA, CA•IFA, CPA (Ill.), CCF, CFE, CFI, is a partner in forensic accounting at Grant Thornton LLP in Toronto.

comments powered by Disqus

Highlights

Update your knowledge and strengthen your network at this must-attend conference covering the most important issues and trends affecting audit committee members.

It’s probable that someone you know is deep in debt. If you are observant, you might see one of these seven signs.