Financial intelligence

From Citizendium, the Citizens' Compendium
Jump to: navigation, search
This article is developing and not approved.
Main Article
Talk
Related Articles  [?]
Bibliography  [?]
External Links  [?]
Citable Version  [?]
 
This editable Main Article is under development and not meant to be cited; by editing it you can help to improve it towards a future approved, citable version. These unapproved articles are subject to a disclaimer.

Financial intelligence (FININT) is the gathering of information about the financial affairs of entities of interest, to understand their nature and capabilities, and predict their intentions. Generally the term applies in the context of law enforcement and related activities, but it is also a prerequisite to waging economic warfare.

FININT does not necessarily involve money laundering, which refers to the practice of the undeclared and covert transfer of money or other negotiable item. However FININT is used to detect money laundering, which is often done as part of or as a consequence of some other criminal activity.

Financial intelligence collection

FININT involves scrutinizing a large volume of transactional data, usually provided by banks as part of regulatory requirements. Transactions made by certain individuals or entities may be studied. Alternatively, data mining or datamatching techniques may be employed to identify persons potentially engaged in a particular activity.

Where financial institutions are required to make manual reports of certain financial transactions, obtaining this information is a type of human-source intelligence, just as the reports of military police in a combat zone is HUMINT. Not all HUMINT comes from espionage. Many industrialized countries have such reporting requirements.

It may be possible for the FININT organization to obtain access to raw data at a financial organization. From the collection standpoint, if the data are in computer-readable format, this is a type of signals intelligence. From a legal standpoint, this type of collection can be quite complex. For example, the CIA obtained access to the Society for Worldwide Interbank Financial Telecommunication (SWIFT) data streams, but this violated Belgian privacy law.

Reporting requirements do not affect Informal value transfer systems (IVTS) [1], the use of which may simply be customary in a culture, and of amounts that would not require reporting if in a conventional financial institution. IVTS also can be used for criminal purposes of avoiding oversight.

US examples

The United States has different organizations focused on domestic and international financial activity. The United States has several laws requiring the reporting to the FinCEN. These include the Right to Financial Privacy Act (RFPA) of 1978, the Bank Secrecy Act of 1970 (and other names of revisions), and the Gramm-Leach-Bliley Act of 1999 (GLBA). Some reports also need to go to the Securities and Exchange Commission.

For example, the reports

Representative Reports required from US financial institutions
Report and definition Authority Receiving Agency
Currency Transaction Report (CTR). Cash transactions in excess of $10,000 during the same business day. The amount over $10,000 can be either from one transaction or a combination of cash transactions. Bank Secrecy Act Internal Revenue Service
Negotiable Instrument Log (NIL). Cash purchases of negotiable instruments (e.g., money orders, cashiers checks, travelers cheques) totaling from $3,000 to $10,000, inclusive. Bank Secrecy Act Internal Revenue Service
Suspicious Activity Report (SAR). Any cash transaction where the customer seems to be trying to avoid BSA reporting requirements (e.g., CTR, NIL). A SAR must also be filed if the customer's actions indicate that s/he is laundering money or otherwise violating federal criminal law. The customer must not know that a SAR is being filed. Bank Secrecy Act Financial Crimes Enforcement Network

Actions that can trigger an SAR being filed include:

  1. Any kind of insider abuse of a financial institution, involving any amount;
  2. Federal crimes against, or involving transactions conducted through, a financial institution that the financial institution detects and that involve at least $5,000 if a suspect can be identified, or at least $25,000 regardless of whether a suspect can be identified;
  3. Transactions of at least $5,000 that the institution knows, suspects, or has reason to suspect involve funds from illegal activities or are structured to attempt to hide those funds;
  4. Transactions of at least $5,000 that the institution knows, suspects or has reason to suspect are designed to evade any regulations promulgated under the Bankruptcy Secrecy Act; or
  5. Transactions of at least $5,000 that the institution knows, suspects, or has reason to suspect have no business or apparent lawful purpose or are not the sort in which the particular customer would normally be expected to engage and for which the institution knows of no reasonable explanation after due investigation. The language of the RFPA indicates that a SAR filed under this rule comes from an individual transaction, not a profile of activities that make the transaction stand out.

International

International financial activity comes primarily from the United States Department of the Treasury and the Central Intelligence Agency. See CIA access to the Society for Worldwide Interbank Financial Telecommunication (SWIFT). After the 9/11 Attack, the largest provider of non-bank money transfers allowed the U.S. intelligence community to have access to its records.

US domestic FININT

At the highest level, US domestic FININT, and also some international work, comes under the Under Secretary of the Treasury for Terrorism and Financial Intelligence, heading the Office of Terrorism and Financial Analysis, including:

Information developed by these units, when related to domestic security and especially when state and local law enforcement, is disseminated by the Office of Intelligence and Analysis (OIA) in the United States Department of Homeland Security, under the Under Secretary of Homeland Security for Intelligence and Analysis. This Office is not restricted to FININT, but handles collection, analysis and fusion of intelligence throughout the entire Department. It disseminates intelligence throughout the Department, to the other members of the United States Intelligence Community, and to affected first responders at the state and local level.

Depending on the specific Federal violation, law enforcement investigation may be under agencies including the Federal Bureau of Investigation, United States Secret Service, or the Internal Revenue Service.

International wire transfers

International wire transfers, especially through Western Union, are not generally assumed to have the same expectation of privacy as domestic financial transactions. After the 9-11 Attack, First Data Corporation, which runs the Western Union wire transfer service, offered access to it to the Federal Bureau of Investigation. [2]

Financial intelligence analysis

Examples of financial intelligence analysis could include:

  • Identifying high-risk housing tenants on the basis of past rental histories.
  • Deterring tax payers trying to avoid their ficudiary obligations by moving wealth surreptitiously out of a tax-levying jurisdiction.
  • Discovering safe havens where criminals park the proceeds of crime.
  • Accounting for how a large sum of money handed to a targeted individual disappears
  • Checking to see if a corrupt individual has had any sudden and unexplained windfalls.
  • Detecting relationships between terrorist cells through remittances.

Financial intelligence organizations

Government organizations may simply receive and process raw financial reports, and forward them, as appropriate, to law enforcement and/or intelligence agencies, include the multinational Egmont Group, and national organizations such as:

Terrorist financing scenarios

Gems as an untraceable currency and source of income for terrorists

Following the 9-11 attack an allegation was made in the Wall Street Journal that tanzanite stones were being used as an untraceable currency and source of income for terrorists. This has not since been firmly established. See possible examples.[3]

However, the Internal Revenue Service has since instituted new anti-money laundering regulations to control the gem trade.[4]

Front-running the market in a terrorist attack

Another intriguing possibility is that a terrorist might buy stocks which are likely to appreciate in the event of a terrorist attack, such as defense industry stocks, or sell short stocks which are likely to depreciate, such as airlines. This possibility led to many investigations of the financial markets subsequent to the September 11, 2001 attacks.[5]

References

  1. United States Department of the Treasury, Financial Crimes Enforcement Network (March 2003), Informal Value Transfer Systems, FinCEN Advisory Issue 33, FinCEN-2003-33
  2. Ron Suskind (2006), The One Percent Doctrine: Deep Inside America's Pursuit of its Enemies Since 9/11, Simon and Schuster, ISBN 9780743271097, pp. 11-13
  3. Douglas Farah (Oct. 24, 2003). The Role of Conflict Diamonds and Failed States in the Terrorist Financial Structure. The Watson Institute, Brown University.
  4. "New Requirement for the Precious Metal, Precious Stone, and Jewel Industries", irs.gov
  5. "Terrorist trade probe widens: Options buying rose in firms that attack affected", by Robert Manor and Melissa Allison, Chicago Tribune, September 19, 2001