Page 568 - IOM Law Society Rules Book

Wire transfers and terrorist financing

Terrorists use wire transfers to move the funds intended for the financing of their
activities. The financial support structure revealed after the September 11th attacks
in the United States showed theessential role played by wire transfers in providing the
hijackers with necessary financial means to plan for and eventually carry out their
attacks.

The term wire or funds transfer, refers to any financial transaction carried out for a
person through a financial institution by electronic means with a view to making an
amount of money available to a person at another financial institution. In some cases,
the sender and receiver could be the same person. Wire transfers include transactions
that occur within the national boundaries of a country or from one country to another.
Given that wire transfers do not involve the actual movement of currency, they are a
rapid and secure method for transferring value from one location to another.

Payment systems at both inter-bank and retail level now provide better coverage and
efficiency for both domestic and cross-border wire transfers. The continuing
development of world-wide networks such as SWIFT has enhanced the reliability and
efficiency of inter-bank payment systems allowing a large number of transactions to
be processed daily. Within the retail banking sector, services such as telephone and
internet banking allowing customers to execute transactions on a non face-to-face
basis from any location with telephone or internet access.

Advances in payment system technology have had a twofold impact in relation to the
potential abuse by terrorist financiers and money launderers of such systems. On the
one hand, electronic payment systems provide greater security for transactions by
permitting an increased ability to trace individual transactions through electronic
records that may be automatically generated, maintained and/or transmitted with the
transaction. On the other hand, these advances also create characteristics that may be
attractive to a potential terrorist or money laundering. For instance, the increased
rapidity and volume of wire transfers, along with the lack of consistent approach in
recording key information on such transactions, maintaining records of them and
transmitting necessary information with the transactions, serve as an obstacle to
ensure traceability by investigative authorities of individual transactions.

A further complication is presented by transfers that take place through non-bank
financial institutions such as money remitters, bureaux de change or other similar
types of businesses. In some countries, these businesses perform wire transfer
functions either directly with counterpart businesses in their own country or abroad or
else through conventional financial institutions (i.e. banks). Again, differences in
requirements for recordkeeping or transmission of information on the originator of
transfers conducted through such businesses may be used to the advantage of terrorist
or other criminals that desire to move funds without being easily detected by
authorities.