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March 10, 2005

Impact of Terror on Financial Institutions (Part 2)

(Continued from: Impact of Terror on Financial Institutions, part 1)

Alexander Schindler
I think you are absolutely right and I would support your statement but I also believe that you can. With today’s technology you can establish a system, a technical system, but also you can establish patterns that you use to analyse flow of funds and so on. Look what you use achieved with regard to insider trading over the last ten, fifteen years. You are right, you have to make it very difficult. People have to be concerned caught and trapped at the end of the day. Five years ago you could hardly find a compliance officer in a German bank, today everyone has a compliance officer in their department. So times have changed and I think you can gain form that experience, but at the end of the day, you are unfortunately right we are not going to close all of the sources of funding. Peter.

Peter Sutherland
Well, I completely agree with the Polish former minister, and Guillermo, I mean I think we are living in cloud cuckoo land if we think this problem is going to be resolved by banking regulations and further activities. That does not mean that we shouldn’t do everything that we can to ensure the maximum the degree of transparency and therefore to reduce as best we can the facility with which things happen. But we’ve two problems here. We’ve the problem of where the money comes from. Does it come from terrorist or criminal activity? And secondly, we’ve the problem of where is the money going to. It may be legitimate money going to illegitimate purposes. We’ve had a legitimate comment about the whole problem of Islamic banking. Now the reality is that large funds from Saudi and other countries has apparently, as I understand it, been channelled in to madrasses and into universities or cultural organisations, and some money has been used to support the teaching of extremist doctrines and the developments of extremist positions. That’s one thing. The money may be perfectly legitimate.

The other issue is the money of FARC or IRA or ETA or anybody else, which has been acquired through illicit activities, kidnappings, robberies or whatever, and which they are trying to deal with. I think they are quite different and I think that in the latter case we are entitled to say you have to tell us where that money came from. We don’t have to prove that you took unnumbered notes from a bank account around the corner. I mean that is where we sort of have to get real about this, without infringing human rights, but recognising that we are dealing with a new and different phenomenon. And those that have had to actually live with this as I have and as they know what it is like here in Spain. It is not a denigration of the rights of the individual to say that we must adapt our legal procedures with due process and transparency to deal with that issue.

The last point I want to make is, if you take for an example the 9/11 individuals and the practical reality of what happened. What happened in that case was that accounts were opened with cash or cash equivalents. The amount of monies involved were relatively small. Identification to use to open the accounts were visas which had been duly obtained through Saudi Arabia or the UAE and the accounts were normal checking accounts with normal debit mechanisms. None of the hijackers had social security numbers. That’s true. That’s what actually happened and it is very difficult to cut out that sort of thing completely.

Moderator. Arpad Von Lazar
We have to discipline ourselves here, so two short comments here, so Peter and Rico, very short, please, and then we will take our last questions and comments.

Peter Eigen
I would like to address very briefly this question of lack of political commitment. Wy is there a lack of political commitment? Because many of the actors of traditional governments in a globalised economy are simply are not able to develop a proper political commitment for some of these issues because they are captives of time horizons. They are captives of interest groups, of constituencies which simply don’t allow them to take these issues on.

We saw this in the corruption area where under 5 years ago the rich countries of the world thought they had to serve their own exporters by allowing them to bribe foreign decision makers. This was a total failure of traditional government and the international institutions were all captive of this. And the same issues when it comes to dealing with terrorism. The same thing is true when you deal with human rights, with labour conditions all the issues which have been raised by Kofi Annan in this UN global compact.

Therefore, my very strong plea: let’s invite and empower civil society to participate with the private sector, with the governments in a coalition in order to deal with these issues which then can be dealt with where a political commitment can be built up which means of course also a tremendous challenge to civil society organisation to grow into this responsibility.

Rico Carisch
Just quickly two points to Peter Sutherland’s description of the 9/11 attackers. One additional thing, though. Intelligence agencies from several countries were actually tracking these individuals. Of course they didn’t know what they were up to but they were tracking them. Their identity and affiliation with Al Qaeda was known. Sharing that would probably have helped us.

Another point that we begin to see is a sort of a astonishing realisation, so we have on the one hand those who have information or are supposed to have the information at the very least. We have on the other hand those who should really use it and apply it in and effective prevention system. But there is partnership here. Both sides of this potential partnership seem to be extraordinarily reluctant to come forward and just optimise what seems to be an actual mutual interest. Create some kind of effective centralised tools, beyond what is already there. There is the financial intelligence units. There can be a lot more done with those existing tools and maybe then also with the additional information gathering and processing systems even further enhance that. I think we have incremental opportunities for improvement.

Moderator. Arpad Von Lazar
Thank you, Rico. We go to our last question/comment.

Loretta Napoleoni
Thank you. I am Loretta Napoleoni. I am the coordinator of the Finance & Terrorism Working Group [on the Summit] [...] I wanted to pick up on your intervention which I think was extremely interesting, on the concept of seniorage. Now the United States being the country which holds the dollar, which is the reserve currency of the world, actually has the seniorage over its money supply, which means that actually the US Treasury can borrow against the total amount of the money supply in circulation in the world. Now I don’t have the most recent statistics, but up to 2001, two thirds of the new stock of cash. I am talking about [...] in cash of the U.S money supply actually left the United States and it left in bulk shipments. We are not talking in suitcases but in also containers. That amount of money went to fund the criminal economy, the illegal economy including of course corruption and kick backs, and finally the terror economy.

Now, just to attach this comment to the comment Peter Sutherland made about national legislation. The Patriot Act does not address the concept and the consequences of this phenomenon at all. It simply blocked the entry of terror and criminal money into the United States via off shore facilities, in particular by blocking any kind of business done between the U.S registered foreign banks, with shared banks. It did they not block the exit of the stock of dollars which still goes to fund the criminal economy, the Illegal economy and the terror economy across the world. Now just to wrap up this. Had the Patriot Act been produced in corporation with the financial markets, with the banks, with people like you who actually pointed out the importance seniorage, perhaps we would have got a better legislation than we have.

And on top of that, I won’t bore you, but the economic consequences of the Patriot Act is the shifting of the centre of the money laundering and funding in the United States to Europe. The appreciation of the Euro, which you in Europe are now battling, the depreciation of the dollar. The consequences are immense. So it is a new phenomenon financing terrorism and also counter financing terrorism. We got to work together. We can’t say one country, we can’t say a judiciary. It has to be a concerted effort from the people at the very bottom to high finance. Unfortunately, this is the new way we are fighting and we have got to fight it together.

Thank you very much

I just would like to add to it that the Congress of the United States –just one brief comment. You are absolutely right. The Patriot Act does not address the question that you highlighted which is most significant. The Congress of the United States has somewhat limited, not capacity, but ability to cope with very quick financial debits. Issues which have very quick financial ramifications, it has been the history of Congress, I must say as having been deeply involved in these matters, they don’t do terribly well seeing what is right in front of them. I would like to thank all the panellists here all their comments and participation and I would like to thank the audience for coming, listening and commenting. Thank you very much again.

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