According to the International Monetary Fund, this represents between two and five per cent of the world’s gross domestic product. The lower figure is equivalent to the value of the total output of an economy the size of Spain’s.

This massive sum of illegal money usually finds a home in geographical areas that have lax control over their financial institutions (off-shore ‘tax havens’) where it is invested principally in ‘passive’ i.e. non-tangible-asset producing ventures. Obviously, the activity has a very serious impact on international economic development.

Money laundering can only flourish where some sort of banking system exists that is willing to cooperate with money launderers. Because banking for money launderers can be extremely profitable many bankers cannot resist the temptation to participate.

HOW DO WE FIGHT ‘MONEY LAUNDERING’?
Money laundering is defined by national and international laws that prescribe sanctions against those who practice it.

In 1989 FATF (Financial Action Task Force), a Paris-based international policy-making body which, today, has about 40 member nations, was created by the G-7 Summit to develop and promote international policies to combat money laundering and terrorist financing.

The EGMONT GROUP was founded in 1995. It is a Toronto headquartered international FORUM of financial intelligence units the members of which work together to improve their respective anti-money laundering and anti terrorist financing programs. These members are all called FINTRACS (Financial Transactions and Reports Analysis Centers) formed to collect and analyze financial intelligence to detect, prevent and deter money laundering and terrorism.

FINTRACS now numbering about 40 in various jurisdictions are the sharp end of the fight against money laundering and terrorist financing.

FINTRACS rely heavily on the Know Your Client (KYC) concept whereby EVERY EMPLOYEE OF EVERY PARTICIPATING FINANCIAL INSTITUTION is required to know his client and report any unusual or suspicious transaction to FINTRAC by filing what is known as a Suspicious Activity Report (SAR).

In 2010 over a million SARs were filed in the UK alone.

FATF, EGMONT AND THE FINTRACS are faced with the ALMOST IMPOSSIBLE TASK of monitoring the 13 trillion financial transactions that take place daily worldwide.

HOW DOES TERRORISM FEED ON MONEY LAUNDERING? (and vice versa)
Terrorism is armed conflict, and conducting armed conflicts costs money, lots of it.

Nation-states that engage in armed conflicts raise money from their citizens through taxation. This activity involves mainly clean money.

TERRORISTS raise money in secretive ways from rogue donors. Most of the donors’ money is clean (i.e. emanating from legitimate sources, such as, for example, oil revenues), but, to avoid revealing their identities these donors turn to a form of reverse money laundering (i.e. turning clean money into dirty money) through complex, parallel, systems (using Swiss banks and numbered and off-shore accounts) to ‘dirty’ their money they want to spend on terrorism.

Another system (much liked by Islamic extremists for obvious reasons) is the HAWALA, a type of financial institution that is almost impenetrable because it is based purely on personal trust and operates virtually without records

This informality makes the HAWALA very popular in the Middle East, especially with the poor who do not know how to cope with paperwork, cannot afford to pay bank charges and cannot adhere to minimum balance requirements.

Curiously, the system was NOT invented by Muslims, but by the Knights Templar, a Christian Crusading Order created during the Crusades.

Consider two ‘brothers’: one lives in Montreal, the other in Moscow. They can effect international payments and receive funds without much money changing hands and without creating a paper trail.

 
Question: How? Answer: Via offset.

Example: Montrealer X wants to buy some furs in Moscow. He gives the Montreal ‘brother’ ten thousand dollars to pay a fur trader in the Russian capital. The Montreal ‘brother’ calls his Moscow ‘brother’ who pays the fur trader who then ships the goods to Montreal.

Sooner or later a resident of Moscow will visit the Moscow ‘brother’ to give him money with a request to pay someone for something in Montreal. The Moscow ‘brother’ who is owed ten thousand dollars by his Montreal ‘brother’ keeps the Muscovite’s money and offsets the money so received by applying it against his ‘brother’s’ debt to him.

Not much money needs to change hands physically – only the difference between the two transactions’ amounts.

THIS IS A PERFECT SETUP FOR TERRORISTS, AS LONG AS THERE IS AT LEAST ONE DISTRIBUTION POINT IN EACH GEOGRAPHICALLY RELEVANT REGION.

Before 9/11, two well-known Hawalas that had a presence in over 40 countries raised, managed, invested and distributed funds for Al Qaeda and the Taliban, as well as for literally millions of innocent Muslim families in Africa, and the Middle and Far East.

Now consider this.

ON AVERAGE, PAKISTANI EX-PATS RESIDING IN THE US ALONE SEND TWO AND A HALF BILLION DOLLARS OFF-SHORE EVERY YEAR THROUGH HAWALAS – PRESUMABLY TO PAKISTAN.

This is just the traceable amount – and we only know about one end of the transaction.

Where does some of the money sent to Pakistan finally end up? Terrorist training camps in Afghanistan and Pakistan? Indonesian terrorists? Hamas?

Money also flows from Pakistan to the West through the same conduit.

EXAMPLE: A UK Pakistani family receives a remittance via a Hawala from a rich ‘uncle’ in Karachi. The family donates most of what the ‘uncle’ has sent to the religious community to which the family belongs.

 

This will almost always include a Mosque and its affiliated Madrasa (Orthodox Islamic religious school).

 

HUGE AMOUNTS OF MONEY CAN BE MOVED THIS WAY AND USED TO RECRUIT JIHADISTS STUDYING IN THE MADRASAS.

 

And so it goes: Money Laundering and Terrorism keep walking hand in hand, feeding on each-other world-wide.