The Money Maze: Stopping Terrorist Trade
Homeland Security Insight & Analysis
by Brett Wolf
Monday, 02 October 2006
With a pressing need to move money around the world, terrorists are now
using commerce to disguise their transactions—but authorities
have a response.
In April, the Department of Homeland Security’s Bureau of
Immigration and Customs Enforcement (ICE) and Colombia’s Customs
bureau announced that they had worked together to unravel a complex,
international criminal network that was laundering more than $7 million
in drug proceeds each week under the guise of trade. Some of that money
is thought to have made it into the hands of the Revolutionary Armed
Forces of Colombia (FARC), a leftist terrorist group.
“The Black Market Peso Exchange blurs the line between crime and
commerce, using global trade to mask international money laundering.
This investigation demonstrates what can be achieved when law
enforcement agencies at home and abroad work together to target this
sophisticated form of money laundering,” Julie Myers, ICE’s
assistant secretary, said of the effort dubbed “Operation
Experts say that international law enforcement successes such as this
reveal a largely unexposed, global network of trade-based money
launderers and terrorist financiers that cannot be detected by any one
country acting alone. In fact, in June, the Paris-based Financial
Action Task Force (FATF)—the chief international body dedicated
to fighting money laundering and terrorist financing—released a
report detailing the rampant misuse of trade.
“The international trade system is clearly subject to a wide
range of risks and vulnerabilities that can be exploited by criminal
organizations and terrorist financiers. In part, these arise from the
enormous volume of trade flows, which obscures individual
transactions,” the FATF report stated.
The good news is that US Customs officials have been aware of the
problem for more than a decade. The bad news is that funding for
countermeasures has been scarce.
Since the Bank Secrecy Act (BSA) was enacted in 1970, the United States
has championed financial transparency in the banking system. In the
1980s and ’90s, US officials began to use financial intelligence
collected under the BSA to combat money laundering as part of the
so-called War on Narcotics. Banks’ currency transaction reports
and related BSA filings proved effective in helping federal
investigators bring down drug barons.
But after Sept. 11, 2001, it became clear that obligating banks alone
to report suspicious activity would not generate the financial
intelligence needed to stop terrorists from financing their operations.
To bolster US defenses, the USA PATRIOT Act of 2001 was enacted to
amend the BSA and extend anti-money laundering rules and BSA reporting
requirements to broker-dealers, money services businesses, insurance
companies and other non-bank financial institutions.
Despite all of these new rules, which forced institutions to spend
hundreds of millions of dollars on compliance, most experts agree that
the US financial system remains perilously vulnerable to terrorist
financiers. The reason: so-called alternative remittance systems that
rely on international trade to move wealth around the world and are
nearly impossible to detect without global cooperation.
“Alternative remittance systems are able to bypass, in whole or
part, the Bank Secrecy Act and other regulations designed to make money
laundering and financial crimes more transparent. Although there are a
variety of alternative remittance systems, they all have one thing in
common: The systems are all dependent to various degrees on the misuse
of international trade to transfer value,” according to the State
Department’s 2005 International Narcotics Control Strategy Report
Problem and response
Only the imagination limits the ways in which trade can be used to
transfer illicit wealth around the globe. However, one common technique
involves under- or over-invoicing imports and exports. A simple
example: If terrorists in Pakistan want to move $1 million into the
United States, they can “sell” 1,000 hand-woven Afghan
carpets to a New York import-export company controlled by a US terror
The carpets, which are worth $1,200 each, are sold for $200 each. The
US terror cell imports $1.2 million worth of carpets while paying just
$200,000. They immediately re-sell the carpets to legitimate companies
and keep the $1 million in thoroughly laundered profit. The same
process can work in reverse, with US-based terrorists
“selling” valueless counterfeit goods to their foreign
counterparts at sky-high prices. The result is the same; wealth is
moved into the United States.
Trade-based laundering and terrorist financing between the United
States and Colombia often involves the complex Black Market Peso
Exchange. When selling cocaine in the United States, Colombian drug
cartels amass warehouses full of cash. Instead of attempting to launder
it themselves—an activity that carries significant
risk—they often sell it to Colombian money brokers at a discount.
The money brokers’ US-based toadies then “smurf” the
dirty cash into bank accounts in deposits of less than $10,000 to
prevent the banks from filing currency transaction reports as required
by the BSA. Once the money is in the banking system, it is used to
purchase US trade goods on behalf of Colombian importers.
The Colombian businessmen pay the money brokers—who are located
in their home country—in pesos and get a much better exchange
rate than they could through official, licit channels. In the end,
international trade launders the proceeds of narcotics sales and fuels
drug cartels and terrorist movements, such as FARC.
Cognizant that such trade transactions were being used by Colombian
cartels to launder drug proceeds in the late 1980s, the pre-DHS US
Customs began developing a computer system to detect irregularly priced
imports and exports. That system, known as the Numerically Integrated
Profiling System, or NIPS, debuted in 1993 and has since evolved into a
more complex system known DARTTS (Data Analysis and Research for
Trade Transparency System), which ICE reports can go beyond pricing to
integrate other variables. However, in order to use DARTTS to generate
meaningful leads for financial investigators, ICE needs trade data from
the other countries.
“This analysis requires the comparison of US and foreign import
and export data for the following factors: Harmonized Tariff Schedule,
country of origin, manufacturer, importer, broker, unit price,
commodity activity by time period and port of import/export,” an
ICE official told HSToday.
Lou Bock, a former special agent with Customs, worked with two
university professors in Florida to develop the original NIPS system.
He has since retired, but still works on the project as a consultant.
He told HSToday that convincing other countries to share their trade
data was one of the major initial challenges of the program.
“Colombia was looking for help. But for one country to give
another country its data—that’s a big deal. We took their
data, combined it with ours and showed them massive amounts of goods
leaving their country that they weren’t getting tax money
on,” he said.
Although Bock and others had developed the promising computer system,
they lacked a governmental framework in which to use it. They knew
that, while Colombian officials were desperate at the time because of
drug cartels and terrorist revolutionaries, other countries would be
less agreeable to turning over trade data to the United States on an ad
John Cassara, a veteran Customs investigator who recently retired,
invented the Trade Transparency Unit (TTU) model in 2003. He told
HSToday that the TTU is modeled after the Financial Intelligence Unit
(FIU). The US created the world’s first FIU, the Financial Crimes
Enforcement Network (FinCEN), in 1990, to help law enforcement agency
investigators access and analyze BSA data submitted by financial
“Knowing of the NIPS program developed by Lou Bock, it dawned on
me that we could look at trade data between partners. And if we could
link these things up, we could have a network of these TTUs,” he
Since the creation of FinCEN, more than a hundred other countries
quickly manifested FIUs and now share their financial intelligence
globally through an association known as the Egmont Group. Thanks to
the Egmont Group, financial investigators can access suspicious
activity reports and other reports filed by banks in other
jurisdictions without extensive legal wrangling.
ICE hopes to achieve the same results with trade data. Its first
success came in February 2005 when it helped Colombia’s Customs
Service develop its own TTU. In addition to sending agents to train
their Colombian counterparts, ICE provided 215 computers and other
“Trade-based money laundering is an enormous problem that few
people understand. Thankfully, the government of Colombia has
recognized this threat for many years and remains committed to
addressing it,” Steve Hayward, the ICE Attaché in
Colombia, said at that time.
ICE’s relationship with Colombia has been extremely successful
and has yielded several major busts. In March, ICE teamed up with the
governments of Argentina, Brazil, and Paraguay to create TTUs to fight
trade-based financial crime associated with the tri-border region where
the three South American countries intersect. That area is notorious
for money laundering and terrorist financing.
“Building on our joint efforts with Colombia, ICE is pleased to
work with these nations in creating [TTUs] and joint databases that are
specifically devoted to combating this problem,” said Myers, who
has been a vocal advocate of TTUs on Capitol Hill.
Her voice has helped attract the attention of top US officials.
“[TTUs] allow countries to compare import and export logs to
uncover anomalies that may indicate money laundering and represent a
serious advance in our worldwide anti-money-laundering efforts,”
Stuart Levey, the head of Treasury’s Office of Terrorism and
Financial Intelligence, told the Senate banking committee on April 4.
On May 22, the House Appropriations committee recommended devoting
$13.7 million to the TTU project in the fiscal year 2007 budget.
Although the funding is apt to be quickly exhausted as the program
expands, it represents an important endorsement of the TTU project.
Dean Boyd, a spokesman for ICE, told HSToday that other countries are
“lining up” to work with the US to develop TTUs, in part
because such sharing of trade data would allow them to better combat
trade fraud, which costs them countless millions in lost revenue. Boyd
said he cannot predict when additional TTUs will be developed, however,
nor which countries are next in line.
Cassara, who recently penned a book titled Hide And Seek: Intelligence,
Law Enforcement, and the Stalled War on Terrorist Finance, told HSToday
that there is a reason that ICE is not quickly expanding its
“There is a funding issue. A couple of months ago, people at [the
State Department] said that, instead of standing these things up
willy-nilly like Egmont, we need to concentrate on establishing two or
three of these things, have them work, and they will sell themselves.
That’s the surest way in the government to get money and get
attention,” he said.
Cassara said the availability of qualified personnel is another challenge for ICE.
“They just don’t have enough good people out there who can
train and stand these things up. It’s just not a priority. If
countries are standing in line, you’re going to have to get not
only agents, but analysts out there,” he said.
Still, Cassara added that, once the TTUs are in place, ICE personnel
can “really work some magic.” He said that the onus is on
US legislators to provide the funding that ICE needs to properly expand
“For far too many years, our policymakers didn’t grasp that
terrorists don’t just move money through financial institutions.
It was just naïve. It’s taken five years for them to grasp:
‘Maybe terrorists do things that we don’t,’” he
Cassara’s frustration is understandable, considering the
disgraceful treatment he witnessed as a public servant. After Sept. 11,
2001, Customs developed the Operation Green Quest initiative to combat
terrorist financing, taking advantage of the creativity and expertise
of its renowned financial investigators. The Federal Bureau of
Investigation (FBI) thought that it should have the lead in all
terrorist financing investigations, however, and a nasty turf battle
In Cassara’s view, in 2003, after Customs was pulled into the
newly created Department of Homeland Security, then-Secretary Tom Ridge
betrayed his new troops and signed a memorandum of understanding (MoU)
with the Justice Department that gave the FBI what it wanted. Although
some at ICE now say the MoU is water under the bridge, there are still
some who believe the decision was not in the best interest of the
In any case, it appears that TTUs could one day provide ICE with an
opportunity to muscle its way back into terrorist financing
investigations. With Ridge gone, and Myers backing ICE investigators,
the FBI might be biting off more than it can chew if it tries to usurp
Turf battles aside, ICE is using the TTU program to confront a clear
and present danger to this country. If it were not for Customs
visionaries like Bock and Cassara, terrorism financiers and drug
kingpins would be able to continue to move funds in and out of the
country with no fear of being discovered. If Cassara’s vision of
a global network of TTUs is one day realized, some of these criminals
will be trading posh condominiums for jail cells. HST
Brett Wolfis a former counter-terrorism analyst and an expert on US
anti-money-laundering and terrorist financing law. His work regularly
appears in trade publications, and his earlier articles for HSToday,
“Cash Crunch” and “Stalking the Wires,”
appeared in the April 2005 and May 2006 editions.
Acronyms in this article
BSA—Bank Secrecy Act
FARC—Revolutionary Armed Forces of Colombia
FBI—Federal Bureau of Investigation
FIU—Financial Intelligence Unit
ICE—Immigration and Customs Enforcement
MoU—Memorandum of understanding
TTU—Trade Transparency Unit