Arab Banks: Tracing the Funds for Terror; the US Has Been Putting Great Pressure on Arab Banks to Adopt Stringent Monitoring and Reporting Standards to Track Money Used to Finance Terror Groups. (Business & Finance)

By Martin, Josh | The Middle East, April 2002 | Go to article overview

Arab Banks: Tracing the Funds for Terror; the US Has Been Putting Great Pressure on Arab Banks to Adopt Stringent Monitoring and Reporting Standards to Track Money Used to Finance Terror Groups. (Business & Finance)


Martin, Josh, The Middle East


The theory is nice: if you mandate banks to report all significant or suspicious financial transactions, you can track funds used to finance terror organisations. If you can track those funds, you can also block them. If you can block those funds, then terrorism will stop because it will go bankrupt.

Acting on this theory, the US has put great pressure on Arab governments, particularly those in the Gulf, to `adopt stringent new bank monitoring and reporting standards.

While many have done so, the high-handed manner in which pressure was brought to bear has drawn an angry response from bankers and some government officials. They argue that Washington is using its `anti-terror' campaign to mask a major expansion of its economic and political power in the region.

"There has been no definition of terrorism to reinforce the targets set by the US and its allies," said one Dubai-based commentator. "Is there any difference between terrorist acts and economic wars?"

Saudi government officials were less public with their displeasure. Part of the reason for this may be that the US already has the means to track Saudi funds. It has maintained treasury agents in Riyadh since the BCCI collapse in 1992.

Ironically, the US pressure comes at a time when Arab banks are keen to clean up their image -- as well as their balance sheets -- and go global. Most major financial institutions in the Gulf, for example, have long since adopted Generally Accepted Accounting Practices (GAAP) standards or their equivalent. Governments throughout the region have also been mandating greater financial discipline and disclosure, both of banks and financial markets, as part of a policy trend designed to halt, if not reverse, capital flight.

Arab bankers are determined to present their institutions as sound and legitimate players. "Keeping a clean reputation is important to banks," says Nofal Barbar, executive Vice President of Arab Bank. "Nobody wants to be used as a channel for money laundering. The punishment is, once you've been tainted, you're cut off from the international banking community."

Others retorted that the loud US demands for tracking Arab cash flows linked to terrorist organisations have a hollow ring.

In efforts stretching back over 30 years, Washington has been unable to successfully monitor and halt the much larger sums of illegal drug money that flow through Miami, New York and other major US banking centres.

Many experts agree the recent US effort will have little impact on the finances of terror groups, which have always been `low-budget' operations. For example, the Al Qaeda operation, which led to the destruction of New York's World Trade Centre last September, cost less than $500,000. And most of that was raised through common credit cards.

"Banks are not the favoured mechanism for moving funds," says Sarkis Joseph Khoury, professor of International Finance at the University of California. "Terrorism lives off opaqueness."

Nevertheless, pressure to effectively monitor and report large fund transactions has scored success, because governments and banks have their own internal reasons to support such moves.

Even before US pressure, many Arab banks and bank regulators were beginning to adopt stricter reporting standards. In Lebanon, Saudi Arabia, the UAE and other countries, new banking laws -- or stricter have enforcement of existing regulations -- have reflected a determination by banks as well as governments to meet global standards.

Banks throughout the region have begun instituting new internal monitoring systems, to alert them to any unusual cash flows within accounts. John Daly, president of Americas Software Corp., a Miami-based firm which provides banks with transaction monitoring systems, says Arab banks started approaching his company a year ago. "Monitoring is all very new for them," he says. "It's all driven by regulations. …

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Arab Banks: Tracing the Funds for Terror; the US Has Been Putting Great Pressure on Arab Banks to Adopt Stringent Monitoring and Reporting Standards to Track Money Used to Finance Terror Groups. (Business & Finance)
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