NCPA - National Center for Policy Analysis


November 1, 2005

Due to political pressure from America, Britain and the United Nations, the war on terror has a new leader: the private sector. Bankers, fund mangers and accountants are now on the look-out for terrorists around the world, says the Economist.

Even though critics say that a number of recent terrorist attacks have involved very little money, the rise of credit card fraud, welfare fraud and smuggling has left the private sector to bear the burden of stopping funding for terrorists, says the Economist:

  • Banks are now scanning their customer accounts more carefully for signs of suspicious people and transactions.
  • Accounts have been frozen and foreign banks have been cut off from doing business in dollars if America is not satisfied that they are properly sharing information.
  • Millions of customers are hampered by tougher compliance standards and there are growing requirements for disclosure of detailed information on business directors and funding sources.

All this means additional fees and compliance costs for financial institutions, says the Economist:

  • Mid-tier banks in Britain spend $5 to $6 million to implement global screening programs; multinational banks spend another $4 to $5 million to oversee implementation in their overseas operations.
  • London banks spend over ten million pounds on data storage and retrieval.
  • Remediation -- the process of going through an institution's databases of existing customers to verify personal information and check names against sanction lists -- can cost a large multinational bank $30 to $45 million.

Similar rules exist in America, Singapore and other European countries but the total cost of complying with anti-terror financing regulation is difficult to determine because many institutions tackle the issue in tandem with money laundering, says the Economist.

Nevertheless, this risk-based approach is gaining wide acceptance, says the Economist.

Source: Editorial, "Financing terrorism: Hindering flows across international financial networks is costly and does not stop terrorists' primary activity," Economist, October 22, 2005.


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