"Why we file": recent books about the war on terror indicate that banks' extensive reporting...

"A cross the government, there were failures of imagination, policy, capabilities, and management.... The U.S. government did not find a way of pooling intelligence and using it to guide the planning and assignment of responsibilities for joint operations involving entities as disparate as the

--FROM THE EXECUTIVE SUMMARY, "THE 9/11 COMMISSION REPORT"

Impotence--not the stuff of T.V. commercials, but the realization that one is powerless to improve a horrible situation--dominated the minds of many on 9/11/01, and after.

But John Cassara, a federal insider, felt far worse.

"I felt as if I had failed," he writes in the introduction to his Hide & Seek: Intelligence, Law Enforcement, and the Stalled War on Terrorist Finance, one of five books related to the war on terror that we'll review here.

Cassara had worked for the CIA, the Secret Service, the Customs Service, the State Department, and various sections of the Treasury Department, including "money laundering central," the Financial Crimes Enforcement Network (FinCEN). Much of his 26-year career was spent on cases involving the Middle East and he put in two years as an undercover arms dealer. He came to write his book because, he says in a preface, "there has been little discussion in the public domain about how the system of financial intelligence put in place during the War on Narcotics is inadequate for the new War on Terrorism."

Why efforts fail

Cassara's chief premises:

1. A wealth of financial intelligence has been squandered over the years due to inadequate analysis-or analysis never performed.

2. Even more financial intelligence has gone unmined because federal efforts concentrate on banking and other transactions covered by traditional reporting requirements--instead of on what Cassara makes a strong case for being a much bigger threat: fraudulent trade that is used to camouflage laundering and terrorism finance.

3. Our enemies are laughing at us.

"I knew well the entrenched culture of the bureaucracies that in some ways enabled the attacks," Cassara continues in his introduction. "In that sense, the attacks were not a surprise."

Cassara has clearly spent a good part of his career as a squeaky wheel who was frequently ignored. But he makes a convincing case that too much good work--by agents, analysts, and banking institutions--has been wasted. The reasons range from interagency jealousies and inabilities to cooperate, to petty turf battles within agencies, to political correctness applied in bizarre ways, to simple shortages of funds for travel and other expenditures that might have helped develop investigations. At times, some officials just didn't seem to "get it," when it came to the evolving world of terrorism finance.

Bureaucratic messes

Cassara spent time both as a liaison to FinCEN from another part of Treasury as well as on FinCEN's own staff, and presents an unflattering picture of its internal functioning. Much of the potential analysis that could have been done didn't get done in his time there. He describes a malaise that developed:

"Most of the principal proactive analysts left. One very talented young analyst actually quit the government in frustration. This became the culture of the FinCEN bureaucracy. Meanwhile, FinCEN's senior management team, knowingly or unknowingly, misled officials in the Department of the Treasury and congressional oversight staff with so-called FinCEN success stories, which were few and far between."

Distressing as this may be for bankers busy filing reports, a worse revelation from Cassara--who thought the principle behind creation of FinCEN held great promise--is that FinCEN was slow to catch on to the importance of alternative remittance systems such as hawala, the Middle-Eastern system of transferring funds via interlinked merchant, family, and similar connections and obligations. Writes Cassara, who pushed for recognition of shifting value-transfer channels:

"FinCEN management was fixated on traditional Western-style ways of business and banking. If it did not involve a bank account, wire transfer, check, or use of an automatic teller machine, they were at a loss. The emphasis on the BSA was a logical outgrowth of FinCEN's vested bureaucratic interests to preserve its resources and turf. Slow to grasp new and emerging threats, displaying a disdain for non-Western value transfer, reluctant to entertain imaginative ideas, and bureaucratically wedded to the status quo, FinCEN management could not think of a money-laundering or, later, terrorist-finance threat that did not have as a solution yet one more financial reporting requirement."

Institutional blindness

In fairness, Cassara gives much evidence that the terrorists would not have been, could not have been, caught with traditional BSA tools. But he goes on to criticize his former agency in this way:

"I believe that even if a few meaningful investigative leads had been included in the financial databases, FinCEN, the Treasury bureau primarily charged to exploit the BSA, would have failed to find and act on the possible leads prior to September 11 because FinCEN did not have the proper data-mining tools, expertise, personnel, proactive infrastructure, and management systems in place."

Cassara left the agency, in disgust, in June 2002, and spent the remainder of his government career working as a detailed Treasury employee at the State Department's Bureau of International Narcotics and Law Enforcement.

"We have done a poor job of exploiting the tens of millions of financial intelligence reports on file under the BSA," writes Cassara. But he also warns in an interview that the huge numbers of reports still being filed as a "cover yourself" exercise simply add to the problem. He adds that the recent shutdown by FinCEN of its BSA Direct is the latest example of the failure to make use of the data.

Financing hidden in trade

There is much more--and worse--that Cassara has to say on this and related matters. But it leads directly to a major point of his book. Increasingly, he believes, we are looking for terrorism finance in the wrong places.

Much of the book is devoted to illustrating how terrorist financing and money laundering can be executed through fraudulent trade invoicing, as well as in gold and diamond trade.

With the focus on flows of value as money, increasingly, "we are not following the value trail at all," says Cassara in an interview. "It's five years after 9/11 and we are not following the money out there."

Laundering through trade is so simple that it is almost laughable. In its simplest variation, trade-based terrorism financing involves overbilling, through inflated prices for goods, or by billing for more goods than have actually been shipped. Add inattentive, crooked, or cooperating customs authorities in the areas where this takes place, and it becomes an easy way to move actual monies through monitored channels in a way that looks legitimate.

Cassara makes a big point regarding the importance of gold in the terrorist financing toolbox. "There is simply nothing else out there like it," he writes. It can be a commodity, or an exchange of value by itself, and can be melted and recast into any form, size, or shape.

The solution? In many parts of the world, helping out Americans by paying closer attention to trade is a nonstarter. But collecting increased duties on trade, now that has a sweet sound to the ears of most governments. This is the tune that Cassara thinks--based on experience--will help win many over to cooperating in detecting illicit trade that masks terrorism finance.

The idea is that governments are being shorted on their import duties by cheating, and will be willing to help root it out if they gain increased duties as a result. In his book, Cassara sets out a mechanism whereby governmental units that would implement BSA-style controls in the trade arena could be encouraged internationally.

Plenty of blame to share

Charges of bungling, incompetence, non-cooperation, and allowing Politics (the ideological kind) and politics (the turf-oriented kind) to diminish America's response to terrorism are no monopoly of John Cassara, though he clearly brings an experienced insider's view to the matter.

A very different view of the war on terror is to be had in The One Percent Doctrine: Deep Inside America's Pursuit of Its Enemies. Author Ron Suskind, a university fellow and writer of muckraking books based on "inside dope," formerly covered national affairs for The Wall Street Journal.

While Cassara's book often understates the drama of what's going on--a professional enforcement and intelligence man would do that--Suskind's book alternates between shocker revelations about government actions and injected drama, often with a definite point of view. Much of Suskind's book is behind-the-scenes, inside Washington material.

This is a highly political book, and conservative readers should address its pages with a bottle of Pepto-Bismol within reach. The inside picture that Suskind portrays is rarely a pretty one. One of Suskind's key premises is that many of the advances and victories in the war on terror that have been trumpeted are overblown at best, misrepresented at times, and sometimes plain lies. Some of the ground here has been well-churned by other boots, some of it is new.

Hitting al Qaeda where it hurt

Terrorist financing receives a fair deal of coverage in terms of freezing or tracing flows of funds from the viewpoint of the intelligence community. Suskind deals chiefly in overseas exploration of finances, and the likes of hawalas and legitimate and illegitimate charities. Indeed, FinCEN and any activities related to what it does receives exactly two mentions that we could find.

Yet one genuine coup on the part of U.S. intelligence that Suskind does reveal is fascinating: the infiltration-now over with--of al Qaeda's own "bank" by U.S. agents.

Osama bin Laden's banker, in the period leading up to 9/11, was Pacha Wazir. Suskind identifies him as "a shadowy financial kingpin from the United Arab Emirates-the open-air money bazaar of the Arab world." Wazir operated "hawalas, storefront banks, and wire transfer stations across South Asia and Europe. Over the ensuing weeks, as everyone connected their data, it became clear that he was the main money-handler for Osama bin Laden." Suskind says Wazir handled $67 million for al Qaeda in two years.

Because of his central role, Wazir's name was removed from a list of entities whose assets were to be frozen by Presidential order in late 2001. A team deployed by Dennis Lormel, then of the FBI and now a consultant (Corporate Risk International) and periodic speaker at ABA events, investigated and monitored Wazir's activities, based in Dubai, UAE.

Unlike in other parts of the Arab world, such as Saudi Arabia, the U.S. received unprecedented cooperation from UAE financial authorities, according to Suskind. However, because of jurisdictional issues, the U.S. found that prosecution in this country of Wazir on significant charges would be nearly impossible. The FBI backed off, and CIA stepped in.

Serendipity now played a part. The UAE authorities, anxious to show cooperation, froze Wazir's assets themselves, and he was told, when he complained, that he was under FBI investigation.

Wazir, brazenly, decided to contact the local agents of the FBI--the UAE officials "flubbed" and revealed the team's presence in Dubai--intending to explain himself and the apparent "misunderstanding." The day of his meeting, CIA agents picked him up in his driveway. Wazir wouldn't talk--though Suskind says he was said to be an irreligious opportunist, not a zealot--and the CIA had no more luck with his brother nor two key employees in Karachi, Pakistan. They couldn't be turned--but they could be replaced.

Which is just what Suskind says the CIA did. FBI agents of Pakistani ancestry replaced the Karachi staff, posing as a pair of distant relatives filling in. Customers bought the cover story.

"Over the coming months," Suskind writes, "dozens of key captures in Pakistan and elsewhere would be made because the CIA had taken up residence inside al Qaeda's bank."

In the course of this, Suskind writes:

"The undercover agents working the sting provided reams of actionable intelligence. The challenge was to foil plots without revealing that the storefront hawala was owned by CIA. E-mails from Wazir were fabricated. The agents, facilitating transactions, could often tell where operations were due to start, and by whom. They could also detect who, precisely, was funding al Qaeda operations. As the financiers were taken down, one after another, money for operations, or basic supplies for the far-flung al Qaeda network, started to dry up."

As Suskind tells it, this mission, which ended in 2003, helped shift strategy away from simply trying to starve terrorists of funds to finding ways to track financial flows as a means of generating intelligence. In time, al Qaeda caught on to this and other means of tracking operatives' actions through finances, and there has been more movement towards the use of couriers to carry funds and communications. In addition, as illustrated by what has come to light thus far about the recent conspiracy uncovered in England to bring down jets bound for the U.S., local groups with their own funding have also entered the playing field.

An evolving challenge

Indeed, that is a key point made in Peter Lilley's Dirty Dealing: The Untold Truth About Global Money Laundering, International Crime and Terrorism. This is a book that is at once an exhaustive manual of nearly every aspect of money laundering and terrorist financing that one can think of, but also something else--a consultant's personal journey, of sorts.

The book is actually the third edition, updated, of Lilley's work, originally published in 2000. Lilley, head of U.K.-based Proximal Consulting, has not only updated it, but reflects in the text on how and why he has updated it, especially in regard to terrorism finance. To wit:

"In the second edition of this book, prepared a few months after 9/11, I provided a basic list of preventative methods for organizations to implement so that they could identify potential or actual terrorist financing. At that stage I was of the opinion (like the majority of commentators) that 'following the money'--cutting off the flows of funds to terrorist groups--could be achieved through reporting of such suspicions.... I am no longer convinced by this line of argument."

Lilley's central finding about terrorist finance is that yesterday's means and the methods of stopping it, are old news to both sides. One can argue that it is likely true that existing safeguards and preventative practices have to stay in place, and Lilley doesn't support abandoning any current preventative measures. But Lilley argues that expecting efficacy from them in preventing future attacks is too much; these matters have a shelf life:

"Terrorist blacklists are ... now of limited use: they are (probably 'were' would be appropriate) a relevant tool to identify assets already held by a group or individual that is known or suspected to support or engage in terrorism. However, they offer a low possibility of helping to preempt future attacks, even by known terrorists. If you or I can go on to the internet and check numerous government-produced terrorist financing blacklists, then the terrorists themselves can do the same, and as a consequence, avoid all of the names, addresses, and details that are shown. Moreover, if a terrorist cell is operating that has avoided the attention of relevant intelligence services, then we should not expect their financial dealings to raise suspicions and as their names will not be 'blacklisted' they will not be identified by that method either."

A conclusion that Lilley reaches at the end of his book's section about terrorist finance is illustrative:

"The problem that we face with Al-Qaeda (and that is not even to include other terrorist groups) is of a virtual organization that is active in almost every country, supplemented and aided by other sympathetic groups or cells using similar methods but with no automatic linear connection between them."

Terrorist finance proved resistant to profiling, and, as summer 2006 headlines pointed out, the alleged presence of women in the group plotting the foiled hijackings discredited some basic conceptions about al Qaeda, further proving the point.

Also looming out there is the internet, with many forms of "internet cash" evolving such that funds can be moved around the globe without the direct participation of traditional financial institutions. Lilley sees the evolving world of internet gambling, internet funds transfer, and even internet business as a ripe opportunity for terrorists.

"There is little if anything at all at present that can halt or restrict washing in space," warns Lilley.

Terrorism or crime? It's all one

In his Crime School: Money Laundering: True Crime Meets the World of Business and Finance, Chris Mathers has a marvelous way of cutting to the chase:

"To an academic, crime and terrorism are separate concepts; statistics and words on a page. To a law enforcement officer, crime and terrorism are the two sides of the same coin, both victimizing innocent people. Simply put, if you're on an airliner that is crashing into the sea, it doesn't really make a huge difference to you whether the guy who planted the bomb in the cargo hold was making a political statement or trying to kill a rival doper up in first class. Either way, you're still dead."

Mathers, now a consultant on crime and money laundering prevention, spent 20 years working as an undercover money launderer for the Royal Canadian Mounted Police. He brings the experience of his many stings to an extensive work on many phases of money laundering, as well as a streetwise sense of humor that lightens up some of the grimness he covers.

One stipulation he makes in his chapter on terrorist finance, following up on the point made in the quote above, is that many organized crime groups started from ideological origins. Somewhere along the line, they turn to crime of some kind to fund operations. And finally they evolve into thugs without morals or principles, just crooked means to crooked ends.

Elaborating, Mathers says, "No matter how strong a terrorist group's ideological convictions may be in the beginning, with the passage of time they will inevitably move along the continuum, away from ideology, toward greed. In other words, they will go from being terrorists to being organized criminals."

Recent headlines are bolstering Mathers' case about al Qaeda, which reportedly has turned to the opium trade in Afghanistan to generate funds. Could the fate of future terrorism victims be going up the noses or into the crack pipes of their fellow citizens?

A historical note ... and a warning

The National Commission on Terrorist Attacks Upon the United States produced a massive work at the end of its inquiries, The 9/11 Commission Report. The report, available to this day on the internet on the commission's frozen site, now administered by the National Archives, included comments concerning terrorism finance mentioned in the opening section of this article. Less known are several monographs that the commission's staff produced. One of these concerned terrorism finance.

The story behind all of this research can be found in the book, Without Precedent: The Inside Story of the 9/11 Commission, written by the chair, Thomas H. Kean, and vice-chair, Lee H. Hamilton. But the casual bank reader, and even the compliance expert, should know that this is a highly detailed tome, something along the lines of a "book of record." In one or two generations, it will be of tremendous value to historical and academic researchers, but it's heavy going today.

However, the book does contain a few nuggets about terrorism financing, the most interesting one being the meaning of the words, "al Qaeda." Now, most sources that give any translation at all state that it means, "the base." This book gives an alternative, "the foundation," and puts it into perspective:

"Whereas base implies some geographic focus, foundation more accurately reflects al Qaeda's role as a source of ideas, inspiration, funding, and operatives for a more diffuse global jihad."

An appendix to the book publishes the December 2005 "report card," complete with letter grades, that the commission issued for the government's efforts in 41 performance categories to do with 9/11 commission recommendations. This was part of the group's own 9/11 Public Disclosure Project, a privately funded effort complete with its own website, www.9-11pdp.org.

The grade for "effort against terrorist financing"? A-, one of the highest in the document, with this commentary:

"The U.S. has won the support of key countries in tackling terrorism finance--though there is still much to do in the Gulf States and in South Asia. The government has made significant strides in using terrorism finance as an intelligence tool. However, the State Department and Treasury Department are engaged in unhelpful turf battles, and the overall effort lacks leadership."