Funding Terrorism With Charity

Funding Terrorism With Charity

By Dialogo
July 01, 2011



Jorge Milton Cifuentes Villa by most standards would be considered a
prosperous businessman and philanthropist. The Colombian national who also holds
Mexican citizenship owned and operated a wide range of companies in several
countries, and he oversaw a handful of nonprofit organizations designed to save the
rain forest and promote sustainable forestry. Despite the appearance of legitimacy,
a bank investigator might have seen red flags.
In February 2011, Cifuentes, a.k.a. Elkin de Jesús López Salazar, and his
companies were added to the U.S. list of Specially Designated Narcotics Traffickers.
The list is part of the Kingpin Act, which applies financial sanctions against
significant foreign drug traffickers. Cifuentes’ front companies helped to move drug
money to the Revolutionary Armed Forces of Colombia (FARC), which is known to use
its funds to conduct terrorist activities. The web of companies Cifuentes owns or
controls in Colombia, Panama, Ecuador, Mexico, Spain and the U.S. gave authorities
further insight as to how nonprofit organizations are being used by criminals to
launder money and finance terrorism.
“They have the means to disperse the money all over the world,” said Octavio
Betancourt, managing director for the risk consulting firm Milersen LLC, at a
Florida conference on money laundering in March 2011. Betancourt explained to bank
compliance officers and others how launderers are exploiting tax benefits and the
good will of donors to finance their illicit activities.
Legitimate-looking nonprofit organizations run by cifuentes, such as
Fundación Salva la Selva (Save the Forest Foundation), were not meant to raise money
from unwitting donors, but rather were a front for funneling money to a drug
trafficking organization. Salva la Selva maintains an attractive website with
user-friendly interfaces and hosts photo galleries of indigenous community members,
animals and forests supposedly benefiting from donations to give the semblance of
truthfulness to investigators. Cifuentes also used companies involved in tourism,
construction, real estate, a Visa prepaid card company and investment funds to move
money that ultimately benefited the Sinaloa cartel in Mexico and the terrorist group
FARC, according to the U.S. and Colombian governments. Electronic payments were used
across a variety of sectors to move the funds through his shell
companies.
Cifuentes and the head of the Sinaloa cartel, Joaquin “El Chapo” Guzman
Loera, were indicted in November 2010 in the U.S. District Court for the Southern
District of Florida on charges of drug trafficking and money laundering. “Going
forward, Cifuentes Villa will no longer be able to masquerade as a legitimate
businessman while supplying cocaine to the Sinaloa cartel,” said Adam Szubin,
director of the U.S. Office of Foreign Assets Control, when Cifuentes was added to
the Specially Designated Narcotics Traffickers list.

Donations to Terrorism
Nonprofit organizations may or may not even be aware when they are being used
to funnel drug money. However, compliance officer research on clients and their
companies could lead to red flags that signal criminal activity. Betancourt said a
close look at the companies belonging to cifuentes raises several questions. In
addition to the two environmental nonprofits he operated was a mining company. The
association between a mining company, known to cause pollution, and environmental
entities would have prompted suspicion for him as an investigator.
More than a decade ago, the exploitation of nonprofits by terrorist
organizations drew the attention of the Financial Action Task Force (FATF), an
intergovernmental body created to promote national and international policies to
prevent money laundering and terror financing. In 2001, FATF created Special
Recommendation VIII to help countries identify when a terrorist organization is
posing as a legitimate nonprofit to avoid asset-freezing measures, or to divert
funds intended for legitimate purposes. The recommendation calls for transparency,
research and cooperation between the public and private sectors.
“While the vast majority of charities are honest, fake charities emerge from
time to time,” said Henrique Dominguez, vice president of EFG Bank Luxembourg, who
also spoke at the conference. “[They are] targeted by criminals to launder the
proceeds from tax crimes and other serious offenses.” Dominguez told bank anti-money
laundering officials that they must do their due diligence to investigate clients,
regarded as “know your customer” in the industry. They also must be alert to an ever
more sophisticated scam network that is making nonprofit organizations a high-risk
sector for money laundering.
“This is very serious,” he said. “The purpose [of the FATF recommendation] is
to ensure that nonprofit organizations are not misused by terrorist organizations.”
Dominguez said compliance officers should check for a history of donations, large
cash donations, a physical address, Web presence, and they should give special
attention to foundations set up after a tragedy, such as the earthquake in Haiti
when governments are preoccupied and donors are eager to provide funds.

Tracking Dirty Money
Many countries in latin America support the work of charitable organizations
and donors by providing tax relief, but the governments may not have the manpower to
investigate every organization for misconduct. Banks and financial institutions have
their reputations on the line, and their compliance officers can prevent the
organization from even establishing a bank account. When suspicions arise, they can
notify authorities.
Gonzalo Vila, director of Latin American operations for the Association of
Certified Anti-Money Laundering Specialists, told Diálogo that each
bank has its own policies when it suspects money laundering, and each country has a
different protocol for notifying authorities to trigger an investigation. However,
in general, it is the bank’s responsibility to deny an account to a customer whose
information cannot be verified. When a bank has evidence that a current client or
potential client receives funds from an illegal source, the bank can file a
Suspicious Activities Report to that country’s Financial Intelligence Unit, usually
located in the ministry of the interior or finance.
Asked by Diálogo to describe how the terrorist threat
manifests itself in latin America, Dominguez gave a firsthand example of transfers
he was handling in the late 1990s as a bank employee in the Tri-Border city of
Ciudad del Este, Paraguay.
He said his bank identified numerous wire transfers from Ciudad del Este to
what clients identified as charities in the Middle East. “So, maybe it’s a
coincidence, but after what happened we know that the terrorist attacks were
supported by donations.”
Ira Morales Mickunas, who analyzes organized crime and financing of terrorism
for Milersen LLC, told Diálogo that investigations have proven that
terrorism financing is happening from money laundered through nonprofits in the
Tri-Border region. “There’s a lot of activity going on in the region … keeping a
very low profile of many of these organizations,” she said of charities ostensibly
promoted as providing health care and education in the Middle East. “Many of these
charitable organizations have been proven in time through investigations by the U.S.
government [to be] fronts for terrorist organizations.” Morales Mickunas could not
estimate how many millions of dollars flow through nonprofit organizations to
terrorist groups because she said these organizations often have a double set of
books, with a lot of money unaccounted for; but she noted that globally, money
laundering accounts for trillions of dollars.
In the decade since the September 2001 terrorist attacks in the U.S., Brazil,
Argentina and Paraguay have worked with the U.S. to closely monitor money transfers
originating from the Tri-Border area. Several entities and people in the region have
also been designated by the U.S. Treasury Department as known Hezbollah
financiers.
Dominguez pointed out those areas where “informal” banking relationships
proliferate are especially high risk. He identified other areas such as Isla
Margarita in Venezuela and the north of Chile, where he said the relations between
bankers and their clients are more important than professionalism, and due diligence
and client background checks can break down, making banks vulnerable.
Betancourt cited terrorist groups within Latin America as exploiting
nonprofits as well. “It’s not only the Middle East; you find terrorist groups, like
guerrillas, within Latin America,” he told Diálogo. “They use these
types of entities to work and to buy arms and to kill people, and [pay for]
assassins for hire.”
While the designation of Cifuentes and his businesses may be a useful tool to
halt his business activity across six nations, studying his and others’ use of
fraudulent nonprofits to funnel money can provide clues for preventing fraud
elsewhere. “We are going to see much more activity in the Latin American region. The
fact that we are not hearing about it doesn’t mean that nothing is happening,”said
Morales Mickunas. “I think that we should be very alert.”
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