How to transfer money without financing terror

Staunching the flow of money to terrorist groups is a global concern, and a group of banking officials tackled the topic at a conference organized by the Union of Arab Banks in collaboration with the Central Bank of Egypt. The conference, which Al-Monitor attended, was held Sept. 17-19 in Sharm el-Sheikh, Egypt.

An Egyptian banking official explained to Al-Monitor at the conference that well-financed terrorist attacks make it clear that current laws are not enough to win the fight.

The official, who preferred anonymity, further explained that in the West, the most dangerous defect in the policy adopted for combating money laundering and financing terrorism may be that criminals have found ways to circumvent the law. They exploit poor control mechanisms and internal auditing, and they misuse the banking system.

However, the Middle East and North Africa (MENA) region must start by getting people into the system in the first place. Accomplishing that goal would help authorities monitor transactions and gather information about the people behind them. Government financial and banking authorities are on the case.

It is absolutely necessary and urgent to bring in the majority of people’s funds to the formal banking sector in the MENA region. To achieve this, financial authorities have had to set up several different methods of exchanging information, accommodating each country and its situation.

For example, Lebanese authorities noted in the past few years that significant amounts of suspicious funds are transferred across three main sectors: cars, jewelry, and foreign exchange and currency conversion. The Lebanese authorities recently classified these three sectors as high-risk areas that will require very strict monitoring.

In Egypt, a more pressing concern is money transferred by Egyptians abroad into the country, the source said. Such transactions are common and present security risks.

About 8 million Egyptians work abroad. During the fiscal 2013-14 year, they conducted more than 50 million transfers or remittances, with a total value of about $20 billion. This ranked Egypt first in the Middle East in terms of financial transfers and sixth in the world, according to the source.

The International Monetary Fund estimates the value of 2013-14 global remittances at $583 billion, with $440 billion of that amount — more than 75% — transferred to developing countries. This is understandable due to the movement of migrant workers from developing countries toward the West and their remittances to their countries of origin.

The Egyptian official asserted that each year Egyptians receive more than 50 million money transfers, some of them for small amounts not exceeding a few hundred dollars. Some government and financial officials may underestimate these remittances and undermine the importance of auditing them. Any of these remittances could be part of a money-laundering operation to finance terrorism. 

Egyptian authorities have deployed extraordinary efforts to integrate these remittances, or most of them, into the banking system to facilitate their auditing, monitoring and follow-up. Some of those efforts were designed to entice more people to the official bank system by cutting transaction costs. However, bringing in more people meant more effort had to be devoted to monitoring transactions. To ensure accuracy and security, banks subjected customers to time-consuming methods of scrutiny, including a lengthy list of documents to fill out, which tends to drive people away.

Specialists are seeking to solve this paradox by treating each case separately to determine what level of risk each customer might present — and then subject their transactions to an appropriate level of scrutiny.

In another approach, Egyptian government and banking authorities created special bank cards for Egyptian citizens to use specifically for foreign transfers and remittances. The cards are designed to reduce transfer costs and render transactions subject to full control and supervision, according to the Egyptian official.

Another attempt to attract people involves providing them with viable and profitable investments for their funds currently held outside the banking oversight system. The Egyptian official noted, for example, that the sale of shares in the new Suez Canal generated about 27 billion Egyptian pounds (about $3.5 billion), but a large part of the shares were sold outside the scope of the banking system.

Whatever the means of prevention, protection or punishment, the fight against crime is never-ending. But as the battle gets harder, it becomes even more necessary.