Investigations in Terror

CPAs hit the frontlines in the fight to thwart terrorist funding. By Kristine Blenkhorn Rodriguez | Spring 2016



Data, analytics and forensics may yet prove to be the most effective weapons against bullets, bombs and terrorists. The bankroll attributed to the Islamic State in Iraq and the Levant (ISIL) sports triple-comma figures. It also includes a “payroll,” with ISIL fighters earning anywhere from $50 to $1,700 a month depending on their skill sets. Some reports further claim that ISIL pays monthly stipends to fighters’ families.

To put this in very real terms, we’re talking $10M to $15M flowing from terrorist coffers each month, according to the Financial Action Task Force’s Financing of the Terrorist Organisation Islamic State in Iraq and the Levant (ISIL) report. The financial fortitude of ISIL is likely just a drop in the bucket considering it’s just one of dozens of prominent terror groups plaguing our world today.

Someone needs to stop the cash flow, and that someone could be you.

Tracking Terror

Every month financial institutions around the world file thousands of reports flagging possible ISIL financial activity, explains US Treasury Financial Crimes Enforcement Network (FinCEN) Director Jennifer Shasky Calvery. With our financial system seeing $1T in capital transfers daily, identifying terrorist financing activity among other suspicious activities is often like “finding a needle in a stack of needles,” adds Teresa Pesce, global lead of KPMG’s Anti-Money Laundering Services.

Sadly, it’s not getting any easier. “Our government and financial institutions are fighting one-handed because they’re so compartmentalized and stove-piped,” argues Colin Clarke, associate political scientist at the RAND Corporation and author of Terrorism, Inc.: The Financing of Terrorism, Insurgency and Irregular Warfare. “How do you fight a nimble giant when your fighters can each see only a piece of him?”

ISIL is hardly the only terrorist group in US crosshairs, but it has spawned a new breed of terrorist. For starters, its decentralized, low-cost attacks don’t always raise financial red flags. Added to that, it’s using social media, virtual payments and digital currencies to raise funds. And, of course, smuggling, kidnapping and ransoms still line its pockets well. What’s more, stolen artifacts from Syria and Iraq worth more than $300M have flooded the black market since 2014, according to estimates from the American Schools of Oriental Research.

“While their activities might be abhorrent or backward, make no mistake about their savvy,” says Clarke. “Terrorists aren’t just old men hiding in caves in the desert. They’re also millennials who use their tech skills to run terrorist websites.”

Fighting a New Foe

While US military forces pound battlefields overseas, unlikely allies back at home are stepping up their attacks as well. CPAs increasingly play a leading role in identifying and tracking terrorist-related financial transactions.

These aren’t your everyday CPAs, however. At least, not by the end of their training.

“When accountants get done with school, they have solid backgrounds in audit and tax. But what they need to know to fight terrorism includes investigative methodologies, forensic lexicology and a lot of other specialized skills,” says Darrell D. Dorrell, CPA/ABV, MBA, CVA, ASA, CMA, DABFA, founding partner of FinancialForensics and an expert in training accountants, attorneys, agents and other law enforcement officers in forensics.

“Forensic lexicology allows you to do authenticity testing on financial statements. By virtue of quantifying the words, we can identify how many parties were involved in the authoring, which pieces were altered, and more. Combine that with a CPA’s audit knowledge and now we’re talking real usefulness,” he explains.

Obviously ISIL won’t be filing any financial statements anytime soon, but, Dorrell explains, a CPA’s skills can be applied to just about any financial documentation. Given the fact that ISIL deals with vast amounts of money, chances are that portions of it will pass through financial institutions, says House Financial Services Committee Chairman Jeb Hensarling. “Clearly, the financing linked to terrorism is a critical one. It’s part of the critical fuel line of radical Islamic jihadism. Sooner or later, the funds that are used in these terrorist acts, by and large, enter the financial system. And we are looking at the points where they enter,” he said in a 2015 briefing with reporters.

When those funds do enter the system, hopefully a Suspicious Activity Report (SAR) is filed to alert officials of possible illicit activity. The risks of not filing can be substantial. HSBC, for instance, agreed to a $1.9B settlement in December 2012 to resolve charges that it failed to monitor more than $670B in wire transfers that allowed money laundering activity and breaches of sanctions against Iran, Libya, Sudan, Burma and Cuba.

Determining when to issue a SAR is tricky, however. “The temptation is to flag everything to avoid fines,” says Clarke. “But financial professionals should be parsimonious in the proliferation of SARs. If everything is a red flag, then nothing is.”

CPAs and other financial executives can only do so much, though, given the limited security clearances available today. This is an issue Dennis Lormel saw clearly in his days as an FBI special agent. “We need to be able to issue more security clearances for bank employees so we can share more classified information. That’s currently a hindrance,” he says.

“Immediately following the terrorist attacks in Paris last year, as soon as the names of the attackers were known, banks were running those names through their systems and calling agencies as quickly as they could to prevent further incidents and human harm,” says Lormel. “But that’s too late to prevent human harm that has already happened.”

Still, late is better than never. Following the Charlie Hebdo attack in Paris, Jerry Roberts, section chief of the FBI’s counter-terrorism division, explains that financial institutions provided significant leads to investigators, and that, “As they’re giving us information, we’re able to do subpoenas immediately. That’s going to help us identify close associates, and then we can go out and start to hit those associates.”'

Big Data Detectives

“Do you know who you’re doing business with?” Pesce asks. “If you’re doing business with someone, you really have to understand who they are and who their associates and clients are. They’re introducing third-party risk to you.”

This is where David Stewart comes in. As business director for SAS’ security intelligence practice, Stewart and his cohorts set strategy for how to build out technology solutions that detect and prevent financial crimes such as fraud, money laundering and terrorist financing. In this capacity, he interacts “quite a bit” with federal agencies and financial professionals.

“In general, most financial institutions we work with doubt that terrorism financing can be predicted with any degree of accuracy,” Stewart explains. “How do you track the Tsarnaev brothers’ small outlay of cash to buy a pressure cooker and a few other materials to build bombs?” he poses.

“Financial transactions like the $28,500 online loan Sayed Farook took out shortly before perpetrating the shootings in San Bernardino, Calif. are hard to identify unless you take advantage of the data,” he says.

One of the greatest advantages of Big Data analytics is that once law enforcement identifies subjects of interest, finance professionals have the power to comb through massive amounts of data in very little time, using visual analytics and enhanced search functions to find individuals with much greater accuracy.

“Financial institutions need tools that allow them to analyze activity that may be related to radicalism,” says Stewart. “In the Farook incident, they could have been searching the accounts that he was not only primary signer on, but also cosigner on—transactional and demographic information that could identify degrees of hidden relationships.”

Stewart explains that the biggest analytical challenge is that these are fairly rare events. “With credit card fraud, we have plenty of targets of known frauds that allow us to build highly predictive models that perform consistently well,” he says. “However, there is promise with Big Data architectures that allow data scientists to simulate multiple techniques to identify outliers and anomalous behavior. With the advancements in mining social media combined with machine learning, we have new tools to identify criminal activity. Imagine that.”

A Higher Purpose

As part of its “Higher Purpose” campaign, KPMG asked its people to share how they viewed their meaning and purpose at work in poster form and answer the question, “What do you do at KPMG?” The words “I combat terrorism” boldly headline one of these posters in all caps. The next line reads, “KPMG helps scores of financial institutions prevent money laundering, keeping financial resources out of the hands of terrorists and criminals. KPMG. You’re here for a purpose.”

“We created vivid posters … that celebrated the difference our people make on behalf of clients, communities and society, and displayed them prominently in our offices,” says Bruce N. Pfau, PhD, KPMG’s vice chair of Human Resources and Communications, in a Harvard Business Review article. “We reframed their roles, encouraging them to see themselves not simply as professionals executing audits, for example, but as members of a profession that helps millions of American families.”

“Our profession is not just a job,” adds John Byrne, executive vice president of the Association of Certified Anti-Money Laundering Specialists. “It has much greater impact; we can actually help save lives. We have 32,000 members worldwide. We had only 9,000 in 2010. People are committing to this area. It’s not a check-the-box mentality. Financial pros can really move the needle on cutting off terrorist funding.”   

Want to Join the Fight?

Then you might want to add these credentials to your CPA.

CFF: Training for the AICPA's Certified in Financial Forensics (CFF) credential encompasses fundamental and specialized forensic accounting skills that CPAs apply in electronic data analysis, fraud prevention, detection and response, and financial statement misrepresentation. Learn more.

CAMS: Earning the Certified Anti-Money Laundering Specialist (CAMS) certification from the Association of Certified Anti-Money Laundering Specialists guarantees you'll have the knowledge to detect and prevent money laundering activities. Advanced certifications in audit and financial investigations are also available as a next step. Learn more.